Document:

Exhibit 10.2

CHANGE IN CONTROL SEVERANCE AGREEMENT

(NON-CEO
OFFICER VERSION)

This CHANGE IN CONTROL
SEVERANCE AGREEMENT (this “Agreement”) is entered into as of the         
day of               ,
2007 (the “Effective Date”), by and between DJO Incorporated, a Delaware
corporation (the “Company”),
and                                  
(“Executive”).

W I T N E S S E T H

WHEREAS, the Company considers the establishment and
maintenance of a sound and vital management to be essential to protecting and
enhancing the best interests of the Company and its stockholders; and

WHEREAS, the Company recognizes that, as is the case
with many publicly held corporations, the possibility of a change in control
may arise and that such possibility may result in the departure or distraction
of management personnel to the detriment of the Company and its stockholders;
and

WHEREAS, the Board of Directors of the Company (the “Board”)
has determined that it is in the best interests of the Company and its
stockholders to secure Executive’s continued services and to ensure Executive’s
continued dedication to his duties in the event of any threat or occurrence of
a Change in Control (as defined in Section 1) of the Company.

NOW, THEREFORE, for and in consideration of the
premises and the mutual covenants and agreements herein contained, the Company
and Executive hereby agree as follows:

1.             Definitions.  As used in this Agreement, the following
terms shall have the respective meanings set forth below:

(a)           “Bonus
Amount” means Executive’s aggregate annual target bonus for the
fiscal year of the Company in which Executive’s Date of Termination occurs.

(b)           “Cause”
means (i) the conviction of Executive of, or plea of guilty or nolo  contendere
by Executive to, or an indictment of Executive alleging, a felony or
misdemeanor involving moral turpitude, (ii) the indictment of Executive for
violation of the federal securities laws, (iii) the willful misconduct or gross
negligence by Executive resulting in material harm to the Company, (iv) the
willful breach by Executive of Executive’s duties or responsibilities under
this Agreement, (v) fraud, embezzlement, theft or dishonesty by Executive
against the Company or any Subsidiary, or (vi) willful violation by Executive
of a policy or procedure of the Company or any Subsidiary resulting in material
harm to the Company or any Subsidiary. 
For purpose of this paragraph 1(b), no act or failure to act by
Executive shall be considered “willful” unless done or omitted to be done by
Executive in bad faith and without reasonable belief that Executive’s action or
omission was in the best interests of the Company or its affiliates.  Any act, or failure to 

act, based
upon specific authority given pursuant to a resolution duly adopted by the
Board shall be conclusively presumed to be done, or omitted to be done, by
Executive in good faith and in the best interests of the Company.  Nothing herein shall prohibit the Company
from retroactively determining that Executive’s employment was terminated for
Cause.

(c)           “Change
in Control” means the occurrence of any one of the following events:

(i)            individuals
who, on the Effective Date constitute the Board (the “Incumbent Directors”) cease for
any reason within any twenty-four (24) month period to constitute at least a
majority of the Board (or the  board of
directors of any successor to the Company), provided that any person becoming a
director subsequent to such date whose election or nomination for election was
approved by a vote of at least two-thirds of the Incumbent Directors then on
the Board (either by a specific vote or by approval of the proxy statement of
the Company in which such person is named as a nominee for director, without
written objection to such nomination) shall be an Incumbent Director; provided,
however, that no individual initially elected or nominated as a director
of the Company as a result of an actual or threatened election contest with
respect to directors or as a result of any other actual or threatened
solicitation of proxies by or on behalf of any person other than the Board
(including by reason of any agreement intended to avoid or settle such election
contest or solicitation of proxies) shall be deemed to be an Incumbent Director
until twenty-four (24) months after such election;

(ii)           any
“person” (as such term is defined in Section 3(a)(9) of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”) and as used in Sections 13(d)(3) and
14(d)(2) of the Exchange Act) is or becomes a “beneficial owner” (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing thirty-five percent (35%) or more of the
combined voting power of the Company’s then outstanding securities eligible to
vote for the election of the Board (the “Company Voting Securities”); provided, however,
that the event described in this paragraph (ii) shall not be deemed to be
a Change in Control by virtue of any of the following
acquisitions:  (A) by the Company or any Subsidiary, (B) by any
employee benefit plan (or related trust) sponsored or maintained by the Company
or any Subsidiary, (C) by any underwriter temporarily holding securities
pursuant to an offering of such securities, (D) pursuant to a
Non-Qualifying Transaction, as defined in paragraph (iii), or (E) by any person
of Company Voting Securities from the Company, if a majority of the Incumbent
Directors approve in advance the acquisition of beneficial ownership of
thirty-five percent (35%) or more of Company Voting Securities by such person;

(iii)          the
consummation of a merger, consolidation, statutory share exchange or similar
form of corporate transaction involving the Company or any of its Subsidiaries
that requires the approval of the Company’s stockholders, whether for such
transaction or the issuance of securities in the transaction (a “Business  Combination”),
unless immediately following such Business Combination:  (A) more than fifty percent (50%) of the
total voting power of (x) the corporation resulting from such Business
Combination (the “Surviving  Corporation”), or (y) if applicable, the
ultimate parent corporation that directly or indirectly has beneficial
ownership of at least ninety percent

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(90%) of the
voting securities eligible to elect directors of the Surviving Corporation (the
“Parent  Corporation”), is represented by Company Voting
Securities that were outstanding immediately prior to such Business Combination
(or, if applicable, is represented by shares into which such Company Voting
Securities were converted pursuant to such Business Combination), and such
voting power among the holders thereof is in substantially the same proportion
as the voting power of such Company Voting Securities among the holders thereof
immediately prior to the Business Combination, (B) no person (other than any
employee benefit plan (or related trust) sponsored or maintained by the
Surviving Corporation or the Parent Corporation), is or becomes the beneficial
owner, directly or indirectly, of thirty-five percent (35%) or more of the
total voting power of the outstanding voting securities eligible to elect
directors of the Parent Corporation (or, if there is no Parent Corporation, the
Surviving Corporation) and (C) at least a majority of the members of the
board of directors of the Parent Corporation (or, if there is no Parent
Corporation, the Surviving Corporation) following the consummation of the
Business Combination were Incumbent Directors at the time of the Board’s
approval of the execution of the initial agreement providing for such Business
Combination (any Business Combination which satisfies all of the criteria
specified in (A), (B) and (C) above shall be deemed to be a “Non-Qualifying  Transaction”);

(iv)          the
stockholders of the Company approve a plan of complete liquidation or
dissolution of the Company or the consummation of a sale of all or
substantially all of the Company’s assets.

Notwithstanding the foregoing, a Change in Control of
the Company shall not be deemed to occur solely because any person acquires
beneficial ownership of more than thirty-five percent (35%) of the Company
Voting Securities as a result of the acquisition of Company Voting Securities
by the Company which reduces the number of Company Voting Securities
outstanding; provided, that if after such acquisition by the
Company such person becomes the beneficial owner of additional Company Voting
Securities that increases the percentage of outstanding Company Voting
Securities beneficially owned by such person, a Change in Control of the
Company shall then occur.

(d)           “Code”
means the Internal Revenue Code of 1986, as amended.

(e)           “Date
of Termination” means (i) the effective date on which Executive’s
employment by the Company terminates as specified in a prior written notice by
the Company or Executive, as the case may be, to the other, delivered pursuant
to Section 11 or (ii) if Executive’s employment by the Company terminates by
reason of death, the date of death of Executive.

(f)            “Disability”
means termination of Executive’s employment by the Company due to Executive’s
inability to substantially perform Executive’s duties and responsibilities,
with or without reasonable accommodation, for a period of one hundred eighty
(180) days out of any three-hundred and sixty-five (365) consecutive day
period  as a result of Executive’s
physical or mental incapacity.

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(g)           “Good
Reason” means, without Executive’s express written consent, the
occurrence of any of the following events:

(i)            a
material diminution in Executive’s authority, duties or responsibilities; provided,
however, that Good Reason shall not be deemed to occur upon a change in
authority, duties or responsibilities that is solely and directly a result of
the Company no longer being a publicly traded entity and does not involve any
other event set forth in this paragraph;

(ii)           a
material diminution in Executive’s base compensation, other than any reduction
that applies to substantially all executives of the Company on a proportional
basis;

(iii)          a
material change in the geographic location at which Executive must perform his
duties, except for reasonably required travel on the Company’s or any successor’s
or affiliate’s business that is not materially greater than such travel
requirements prior to the date of this Agreement; or

(iv)          any other
action or inaction that constitutes a material breach by the Company or any
successor of its obligations to Executive under this Agreement.

Executive must
provide written notice to the Company of the occurrence of any of the foregoing
events or conditions without Executive’s written consent within ninety (90)
days of the occurrence of such event. 
The Company or any successor shall have a period of thirty (30) days to
cure such event or condition after receipt of written notice of such event from
Executive.  Any voluntary termination of
Executive’s employment for “Good Reason” following such thirty (30) day cure
period must occur no later than the date that is six (6) months following the
initial occurrence of one of the foregoing events or conditions without
Executive’s written consent and such voluntary termination of Executive’s
employment shall be treated as an involuntary termination of employment.

(h)      “Qualifying
Termination” means a termination of Executive’s employment (i) by
the Company other than for Cause or (ii) by Executive for Good Reason.  Termination of Executive’s employment on
account of death or Disability shall not be treated as a Qualifying
Termination.

(i)        “Subsidiary”
means any corporation or other entity in which the Company has a direct or
indirect ownership interest of fifty percent (50%) or more of the total
combined voting power of the then outstanding securities or interests of such
corporation or other entity entitled to vote generally in the election of
directors or in which the Company has the right to receive fifty percent (50%)
or more of the distribution of profits or fifty percent (50%) of the assets or
liquidation or dissolution.

(j)       “Termination
Period” means the period of time beginning with three (3) months
prior to a Change in Control and ending two (2) years following such Change in
Control.

2.             Obligation
of Executive.  In the event of a
tender or exchange offer, proxy contest, or the execution of any agreement
which, if consummated, would constitute a Change in Control, Executive agrees
not to voluntarily leave the employ of the Company, other than as a 

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result of an event
which would constitute Good Reason if a Change in Control had occurred, until
the Change in Control occurs or, if earlier, such tender or exchange offer,
proxy contest, or agreement is terminated or abandoned.

3.             Term
of Agreement.  This Agreement shall
be effective on the date hereof and shall continue in effect until the Company
shall have given written notice of cancellation or amendment at least one (1)
year in advance; provided, that, notwithstanding the delivery of any
such notice, this Agreement shall continue in effect for a period of two (2)
years after a Change in Control, if such Change in Control shall have occurred
during the term of this Agreement. 
Notwithstanding anything in this Section to the contrary, this Agreement
shall terminate on the date that is three (3) months following the date
Executive or the Company terminates Executive’s employment if a Change in
Control has not occurred.

4.          Payments Upon
Termination of Employment.

(a)           Qualifying Termination.  If during the Termination Period the
employment of Executive shall terminate pursuant to a Qualifying Termination,
then the Company shall provide to Executive, as consideration for the Release
described in Section 4(g) below, the payments and benefits set forth in
paragraphs (b)(i), (b)(ii), (c), (d) and (e) of this Section.

(b)           Qualifying Termination - Cash Payments.  The Company shall make a lump sum cash
payment to Executive in the event of a Qualifying Termination during the
Termination Period of the following:

(i)            Within
three (3) business days following the Date of Termination, an amount equal to
the sum of (A) Executive’s base salary through the Date of Termination, (B) any
bonus amounts which have become payable, to the extent not theretofore paid,
and (C) unreimbursed business expenses incurred in accordance with Company
policy and any accrued vacation pay; and

(ii)           Within
fifteen (15) days following Executive’s satisfaction of the conditions of
Section 4(g) below, but in no event later than the date that is two and
one-half (2 1⁄2) months following the end of the calendar year in which the date
of Executive’s termination of employment (or, if such termination occurs within
three (3) months prior to the date of a Change in Control, the date of the
Change in Control) occurs, the Company shall make a lump sum cash payment to
Executive of the sum of the following:

(A)          An
amount equal to one and one-half (1.5) times the Executive’s highest annual
rate of base salary during the 12-month period immediately prior to Executive’s
Date of Termination; plus

(B)           An
amount equal to Executive’s Bonus Amount; plus

(C)           An
amount equal to a pro  rata portion of Executive’s Bonus Amount,
determined by multiplying such Bonus Amount by a fraction, the numerator of
which is the number of days in the fiscal year in which the Date of Termination
occurs through the Date of Termination and the denominator of

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which is three
hundred sixty-five (365), reduced by any amounts paid to Executive from the
Company’s annual incentive plan for the fiscal year in which Executive’s Date
of Termination occurs.

(c)           Qualifying Termination - Benefits.  If during the Termination Period the
employment of Executive shall terminate pursuant to a Qualifying Termination,
then the Company shall make a lump sum cash payment to Executive within fifteen
(15) days following Executive’s satisfaction of the conditions of Section 4(g)
below, but in no event later than the date that is two and one-half (2 1⁄2)
months following the end of the calendar year in which the date of Executive’s
termination of employment (or, if such termination occurs within three (3)
months prior to the date of a Change in Control, the date of the Change in
Control) occurs, of an amount equal to (i) eighteen (18), multiplied by (ii)
the amount by which the monthly premium Executive would be required to pay for
continuation coverage pursuant to the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended (“COBRA”), for Executive and his or
her eligible dependents who were covered under the Company’s health plans as of
the date of Executive’s termination of employment (calculated by reference to
the premium as of the date of Executive’s termination of employment) exceeds
the contributions required by Executive immediately prior to his or her date of
termination; provided
that Executive shall be solely responsible for all matters relating to
continuation of coverage pursuant to COBRA, including, without limitation,
election of such coverage and timely payment of premiums.

(d)           Qualifying Termination – Life and
Accidental Death and Dismemberment Insurance.  If during the Termination Period the
employment of Executive shall terminate pursuant to a Qualifying Termination,
then the Company shall make a lump sum cash payment to Executive within fifteen
(15) days following Executive’s satisfaction of the conditions of Section 4(g)
below, but in no event later than the date that is two and one-half (2 1⁄2)
months following the end of the calendar year in which the date of Executive’s
termination of employment (or, if such termination occurs within three (3)
months prior to the date of a Change in Control, the date of the Change in
Control) occurs, of an amount equal to (i) eighteen (18), multiplied by (ii) the
amount by which the total monthly premium paid by Executive or on behalf of
Executive by the Company for accidental death and dismemberment and life
insurance coverage as of the date of Executive’s Termination of Employment
(calculated by reference to the premiums for such coverage under the Company’s
plans as of the date of Executive’s Termination of Employment) exceeds the
contributions required by Executive immediately prior to his or her Date of
Termination.

(e)           Accelerated Vesting and/or Exercisability
of Stock Options and Other Equity Awards. 
If Executive’s employment is terminated during the Termination Period
pursuant to a Qualifying Termination, all outstanding awards of stock options,
stock appreciation rights (“SARs”) and restricted stock (each, an “Equity
Award”) granted to Executive prior to the applicable Change in Control which
are outstanding immediately prior to the Date of Termination shall become
immediately fully vested and/or exercisable and free of all restrictions,
limitations and conditions on the later of (i) the Date of Termination or (ii)
immediately prior to the Change in Control. 
In addition, with respect to any Equity Awards that are stock options or
SARs granted to Executive on or after the date of this Agreement, but prior to
the applicable Change in Control, each such Equity Award may be exercised for a
period of no less than twelve (12) months following such Qualifying
Termination, but not later than the expiration of the stated term of such
Equity Award.

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(f)            Non-Qualifying Termination.  If during the Termination Period the
employment of Executive shall terminate other than by reason of a Qualifying
Termination, then the Company shall pay to Executive within three (3) business
days following the Date of Termination, a lump-sum cash amount equal to the sum
of (i) Executive’s base salary through the Date of Termination and any
bonus amounts which have become payable, to the extent not theretofore paid or
deferred, and (ii) unreimbursed business expenses incurred in accordance with
Company policy and any accrued vacation pay. 
The Company may make such additional payments, and provide such
additional benefits, to Executive as the Company and Executive may agree in
writing.

(g)           Condition Precedent.  Upon the occurrence of a Qualifying
Termination, and prior to the receipt of any payments or benefits provided by
paragraphs (b)(ii), (b)(iii), (c), (d) and (e) of this Section on account of
the occurrence of such Qualifying Termination, Executive shall execute a
Release (the “Release”) in the form attached hereto as Appendix A or
Appendix B, as appropriate.  Such Release
shall specifically relate to all of Executive’s rights and claims in existence
at the time of such execution and shall confirm Executive’s obligations under
the Company’s standard form of proprietary information agreement.  It is understood that, in the event that
Executive is at least forty (40) years old on the date of the Qualifying
Termination, Executive has a certain period to consider whether to execute such
Release, and Executive may revoke such Release within seven (7) business days
after execution.  In the event Executive
does not execute and not revoke such Release within the sixty (60) day period
following the later of (i) the date of Executive’s termination of employment or
(ii) if such termination occurs within three (3) months prior to the date of a
Change in Control, the date of the Change in Control, Executive shall not be
entitled to the aforesaid payments and benefits.

5.             Best Pay Provision.

(a)           If any payment or
benefit Executive would receive under this Plan, when combined with any other
payment or benefit Executive receives pursuant to the termination of Executive’s
employment with the Company (“Payment”),
would (i) constitute a “parachute payment” within the meaning of Section 280G
of the Internal Revenue Code of 1986, as amended (the “Code”), and (ii) but for this
sentence, be subject to the excise tax imposed by Section 4999 of the Code (the
“Excise Tax”), then such
Payment shall be either (x) the full amount of such Payment or (y) such lesser
amount (with cash payments being reduced before stock option compensation) as
would result in no portion of the Payment being subject to the Excise Tax,
whichever of the foregoing amounts, taking into account the applicable federal,
state and local employment taxes, income taxes, and the Excise Tax, results in
Executive’s receipt, on an after-tax basis, of the greater amount of the
Payment notwithstanding that all or some portion of the Payment may be subject
to the Excise Tax.

(b)           All determinations
required to be made under this Section 5, including whether and to what extent
the Payments shall be reduced and the assumptions to be utilized in arriving at
such determination, shall be made by the nationally recognized certified public
accounting firm used by the Company immediately prior to the effective date of
the Change in Control or, if such firm declines to serve, such other nationally
recognized certified public accounting firm as may be designated by the Company
(the “Accounting Firm”).   The Accounting Firm shall provide detailed
supporting calculations both to Executive and the

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Company at such time as is requested by the
Company.  All fees and expenses of the
Accounting Firm shall be borne solely by the Company.  Any determination by the Accounting Firm
shall be binding upon Executive and the Company.  For purposes of making the calculations
required by this Section 5, the Accounting Firm may make reasonable assumptions
and approximations concerning applicable taxes and may rely on reasonable,
good-faith interpretations concerning the application of Sections 280G and 4999
of the Code.

6.             Withholding Taxes.  The Company may withhold from all payments
due to Executive (or his beneficiary or estate) hereunder all taxes which, by
applicable federal, state, local or other law, the Company is required to
withhold therefrom.

7.             Resolution of
Disputes; Reimbursement of Legal Fees.

(a)           Subject
to Section 8, any dispute or controversy arising under or in connection with
this Agreement shall be settled exclusively by final and binding arbitration in
San Diego County,  California by a single neutral
arbitrator in accordance with the National Rules for the Resolution of
Employment Disputes of the American Arbitration Association (the “AAA”)
then in effect.  Judgment may be entered
on the arbitrator’s award in any court having jurisdiction.  The Company shall bear all of the AAA’s
administrative fees and the arbitrator’s expense arising in connection with any
arbitration proceeding pursuant to this Section.  Nothing in this Section 7 shall prohibit or
limit the parties from seeking provisional relief, including, but not limited
to, temporary restraining orders or preliminary injunctions before, during or
after arbitration to the extent such remedies are not available through
arbitration or cannot be obtained in a timely fashion through arbitration,
pursuant to California Code of Civil Procedure Section 1281.8 or any similar
statute of an applicable jurisdiction. 
Seeking any such relief shall not be deemed to be a waiver of such party’s
right to compel arbitration.  
Notwithstanding the AAA rules, the parties may take discovery in
accordance with Sections 1283.05(a)-(d) of the California Code of Civil
Procedure (but not subject to the restrictions of Section 1283.05(e)).  Should a non-party witness refuse to comply
with a subpoena issued by the arbitrator and the arbitrator is unable to
enforce compliance with the subpoena, the parties agree to submit the subpoena
to a court of competent jurisdiction for enforcement of the subpoena.  The parties shall have the right to file, and
the arbitrator shall rule on, pretrial motions such as demurrers and motions
for summary judgment (applying the procedural standard embodied in Rule 56 of
the Federal Rules of Civil Procedure). 
The time for filing such motions shall be determined by the
arbitrator.  The arbitrator will rule on
such motions at least ten (10) business days prior to the scheduled hearing
date.  Both the Company and Executive
hereby expressly waive their right to a jury trial.

(b)           If
any contest or dispute shall arise under this Agreement involving termination
of Executive’s employment with the Company or involving the failure or refusal
of the Company to perform fully in accordance with the terms hereof, the
Company shall reimburse Executive for all reasonable legal fees and related
expenses, if any, incurred by Executive in connection with such contest or
dispute if a court of competent jurisdiction or an arbitrator substantially
upholds Executive’s position.

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8.          Non-Solicitation and
Non-Disclosure.

(a)           Non-Solicit of
Customers.  During the term of this
Agreement and for a period of two years following a Qualifying Termination (the
“Restricted Period”), Executive will not, directly or indirectly,
solicit, induce or entice any client or prospective client of the Company or
any Subsidiary to whom Executive provided services, or for whom Executive
transacted business, or whose identity became known to Executive in connection
with Executive’s employment by the Company (i) to transact business with any
business enterprise that competes with the business of the Company and its
Subsidiaries in any geographical area in which the Company or any Subsidiary
does business, or (ii) to reduce or refrain from doing business with the
Company or any Subsidiary.

(b)           Non-Solicit of
Employees.  During the Restricted
Period, Executive will not, directly or indirectly, solicit, induce, entice or
encourage to cease to work with the Company or any Subsidiary, or directly or
indirectly hire, any person who is an employee of or consultant then under
contract with the Company or any Subsidiary or who was an employee of or
consultant then under contract with the Company or any Subsidiary within the
six (6) month period preceding such activity without the Company’s written
consent.

(c)           Confidentiality.  Executive shall not at any time without the
prior written consent of the Company, use, divulge, disclose or make accessible
to any other person, firm, partnership, corporation or other entity, any “Confidential
Information” (as defined below) except while employed by the Company, in
furtherance of the business of and for the benefit of the Company and its
Subsidiaries, provided, that Executive may disclose such information
when required to do so by a court of competent jurisdiction, by any
governmental agency having supervisory authority over the business of the
Company and its Subsidiaries, as the case may be, or by any administrative body
or legislative body (including a committee thereof) with jurisdiction to order
Executive to divulge, disclose or make accessible such information; provided,
further, that in the event that Executive is ordered by a court or other
government agency to disclose any Confidential Information, Executive shall (i)
promptly notify the Company of such order, (ii) at the written request of the
Company, diligently contest such order at the sole expense of the Company, and
(iii) at the written request of the Company, seek to obtain at the sole expense
of the Company, such confidential treatment as may be available under
applicable laws for any information disclosed under such order.  For purposes of this Section 8(c), “Confidential
Information” shall mean non-public information concerning the financial
data, strategic business plans, product development (or other proprietary
product data), customer lists, marketing plans and other non-public,
proprietary and confidential information relating to the business of the
Company or its Subsidiaries or customers, that, in any case, is not otherwise
available to the public (other than by Executive’s breach of the terms hereof).

(d)           Injunctive
Relief.  Executive acknowledges and
agrees that his/her services are personal and unique, and that this Section 8
is necessary to protect the trade secrets of the Company and its
Subsidiaries.  Therefore, the Company
shall have the right to enforce Section 8 by injunction, specific performance,
or other equitable relief, without bond and without prejudice to any other
rights and remedies that Company may have for breach of this Section 8.  Executive further acknowledges and agrees
that it would be extremely difficult to measure in money the damage to the
Company caused by a breach of Section 8, that the restrictions and 

 9
 

obligations contained in Section 8 are material, and
that a breach of any of the promises or agreements contained herein will result
in irreparable and continuing damage to Company for which there may be no
adequate remedy at law.  Accordingly, Executive
agrees that the Company shall be entitled to injunctive relief to remedy any
breach of Section 8.  This shall be in
addition to any other remedies available to the Company in law or equity.

9.             Scope of Agreement.  Nothing in this Agreement shall be deemed to
entitle Executive to continued employment with the Company, and if Executive’s
employment with the Company shall terminate prior to a Change in Control,
Executive shall have no further rights under this Agreement (except as
otherwise provided hereunder); provided, however, that any
termination of Executive’s employment during the Termination Period shall be
subject to all of the provisions of this Agreement.

10.           Successors; Binding
Agreement.

(a)           This Agreement shall not be terminated by
any Business Combination.  In the event
of any Business Combination, the provisions of this Agreement shall be binding
upon the Surviving Corporation, and such Surviving Corporation shall be treated
as the Company hereunder.

(b)           The Company agrees that in connection with
any Business Combination, it will cause any successor entity to the Company
unconditionally to assume by written instrument delivered to Executive (or his
beneficiary or estate), all of the obligations of the Company hereunder.

(c)           This Agreement shall inure to the benefit of
and be enforceable by Executive’s personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees.  If Executive shall die while any amounts
would be payable to Executive hereunder had Executive continued to live, all
such amounts, unless otherwise provided herein, shall be paid in accordance
with the terms of this Agreement to such person or persons appointed in writing
by Executive to receive such amounts or, if no person is so appointed, to
Executive’s estate.

11.           Notice.  (a) 
For purposes of this Agreement, all notices and other communications
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given when delivered or five (5) days after deposit in the United
States mail, certified and return receipt requested, postage prepaid, addressed
as follows:

	
  

  	
  If to Executive:

  	
   

  	
  [Name and Address]

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  If to the
  Company:

  	
   

  	
  DJO Incorporated

  
	
   

  	
   

  	
  1430 Decision Street

  
	
   

  	
   

  	
  Vista, California 92081

  
	
   

  	
   

  	
  Attention: General Counsel

  

 

or to such other address as either party may have
furnished to the other in writing in accordance herewith, except that notices
of change of address shall be effective only upon receipt.

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(b)           A written notice of Executive’s Date of
Termination by the Company or Executive, as the case may be, to the other,
shall (i) indicate the specific termination provision in this Agreement relied
upon, (ii) to the extent applicable, set forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination of Executive’s
employment under the provision so indicated and (iii) specify the termination
date, which date shall be not less than fifteen (15) days (thirty (30) days, if
termination is by the Company for Disability or by Executive for Good Reason)
nor more than sixty (60) days after the giving of such notice, unless such
termination is for Cause, in which case the effective date of termination may
be the same as the date notice of such termination is provided to
Executive.  The failure by Executive or
the Company to set forth in such notice any fact or circumstance which
contributes to a showing of Good Reason or Cause shall not waive any right of
Executive or the Company hereunder or preclude Executive or the Company from
asserting such fact or circumstance in enforcing Executive’s or the Company’s
rights hereunder.

12.           Full Settlement.  The Company’s obligation to make any payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall be in lieu and in full settlement of all other severance
payments to Executive under any other severance or employment agreement between
Executive and the Company, and any severance plan of the Company.  The Company’s obligations hereunder shall not
be affected by any set-off, counterclaim, recoupment, defense or other claim,
right or action which the Company may have against Executive or others.  In no event shall Executive be obligated to
seek other employment or take other action by way of mitigation of the amounts
payable to Executive under any of the provisions of this Agreement and such
amounts shall not be reduced whether or not Executive obtains other employment.

13.           Survival.  The respective obligations and benefits afforded
to the Company and Executive as provided in Sections 4 (to the extent that
payments or benefits are owed as a result of a termination of employment that
occurs during the term of this Agreement), 6, 7, 8, 10(c) and 12 shall
survive the termination of this Agreement.

14.           Governing Law;
Validity.  The interpretation,
construction and performance of this agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of
California without regard to the principle of conflicts of laws.  The invalidity or unenforceability of any
provision of this agreement shall not affect the validity or enforceability of
any other provision of this agreement, which other provisions shall remain in
full force and effect.

15.           Counterparts.  This Agreement may be executed in
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute one and the same instrument.

16.           Miscellaneous.  No provision of this Agreement may be
modified or waived unless such modification or waiver is agreed to in writing
and signed by Executive and by a duly authorized officer of the Company.  No waiver by either party hereto at any time
of any breach by the other party hereto of, or compliance with, any condition
or provision of this Agreement to be performed by such other party shall be
deemed a waiver of similar or dissimilar provisions or conditions at the same
or at any prior or subsequent time. 
Failure by Executive or 

 11
 

the Company to insist
upon strict compliance with any provision of this Agreement or to assert any
right Executive or the Company may have hereunder, including without
limitation, the right of Executive to terminate employment for Good Reason,
shall not be deemed to be a waiver of such provision or right or any other
provision or right of this Agreement. 
Except as otherwise specifically provided herein, the rights of, and
benefits payable to, Executive, his estate or his beneficiaries pursuant to
this Agreement are in addition to any rights of, or benefits payable to,
Executive, his estate or his beneficiaries under any other employee benefit
plan or compensation program of the Company.

17.           Code Section 409A
Exempt.

(a)           The compensation and
benefits payable under this Agreement, including without limitation the
severance benefits described in Section 4 of this Agreement, are not intended
to constitute “nonqualified deferred compensation” within the meaning of
Section 409A of the Code.  To the extent
applicable, this Agreement shall be interpreted in accordance with Code Section
409A and Department of Treasury regulations and other interpretive guidance
issued thereunder.  If the Company and
Executive determine that any compensation or benefits payable under this
Agreement may be or become subject to Code Section 409A and related Department
of Treasury guidance, the Company and Executive agree to amend this Agreement
or adopt other policies or procedures (including amendments, policies and
procedures with retroactive effect), or take such other actions as the Company
and Executive deem necessary or appropriate to (a) exempt the compensation and
benefits payable under this Agreement from Code Section 409A and/or preserve
the intended tax treatment of the compensation and benefits provided with
respect to this Agreement, or (2) comply with the requirements of Code Section
409A and related Department of Treasury guidance.

(b)           If at the time of
Executive’s termination of employment with the Company Executive is a “specified
employee” as defined in Section 409A of the Code, as determined by the Company
in accordance with Section 409A of the Code, and the deferral of the
commencement of any payments or benefits otherwise payable hereunder as a
result of such termination of employment is necessary in order to prevent any
accelerated or additional tax under Section 409A of the Code, then the Company
will defer the commencement of the payment of any such payments or benefits
hereunder (without any reduction in such payments or benefits ultimately paid
or provided to Executive) until the date that is at least six months following
Executive’s termination of employment with the Company (or the earliest date as
is permitted under Section 409A of the Code).

[Signature page
follows]

 12
 

IN WITNESS WHEREOF, the
Company has caused this Agreement to be executed by a duly authorized officer
of the Company and Executive has executed this Agreement as of the day and year
first above written.

	
  

  	
   

  	
  DJO INCORPORATED

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  [NAME OF EXECUTIVE]

  
						

 

 13

APPENDIX
A

RELEASE

(INDIVIDUAL TERMINATION)

Certain capitalized terms used in this Release are
defined in the Change in Control Severance Agreement by and between DJO
Incorporated (the “Company”) and [NAME OF EXECUTIVE] (“Executive”)
dated as of the        day of       ,
20     (the “Agreement”)  which Executive has previously executed and
of which this Release is a part.

Pursuant to the Agreement, and in consideration of and
as a condition precedent to the payments and benefits provided under Section
4(b)(ii), (b)(iii), (c), (d) and (e) of the Agreement, Executive hereby
furnishes the Company with this Release.

Executive hereby confirms his/her obligations under
the Company’s proprietary information and inventions agreement.

On Executive’s own behalf and on behalf of Executive’s
heirs, estate and beneficiaries, Executive hereby waives, releases, acquits and
forever discharges the Company, and each of its Subsidiaries and affiliates,
and each of their respective past or present officers, directors, agents, servants,
employees, shareholders, predecessors, successors and assigns, and all persons
acting by, through, under, or in concert with them, or any of them, of and from
any and all suits, debts, liens, contracts, agreements, promises, claims,
liabilities, demands, causes of action, costs, expenses, attorneys’ fees,
damages, indemnities and obligations of every kind and nature, in law, equity,
or otherwise, known and unknown, fixed or contingent, suspected and
unsuspected, disclosed and undisclosed (“Claims”), from the beginning of
time to the date hereof, including without limitation, Claims that arose as a
consequence of Executive’s employment with the Company, or arising out of the
termination of such employment relationship, or arising out of any act committed
or omitted during or after the existence of such employment relationship, all
up through and including the date on which this Release is executed, including,
but not limited to, Claims which were, could have been, or could be the subject
of an administrative or judicial proceeding filed by Executive or on Executive’s
behalf under federal, state or local law, whether by statute, regulation, in
contract or tort.  This Release includes,
but is not limited to:  (1) Claims for
intentional and negligent infliction of emotional distress; (2) tort Claims for
personal injury; (3) Claims or demands related to salary, bonuses, commissions,
stock, stock options, or any other ownership interest in the Company, vacation
pay, fringe benefits, expense reimbursements, severance pay, front pay, back
pay or any other form of compensation; (4) Claims for breach of contract; (5)
Claims for any form of retaliation, harassment, or discrimination; (6) Claims
pursuant to any federal, state or local law or cause of action including, but
not limited to, the federal Civil Rights Act of 1964, as amended, the federal
Age Discrimination in Employment Act of 1967, as amended (“ADEA”), the
federal Employee Retirement Income Security Act of 1974, as amended, the
federal Americans with Disabilities Act of 1990, the California Fair Employment
and Housing Act, as amended, and the California Labor Code; and (7) all other
Claims based on tort law, contract law, statutory law, common law, wrongful
discharge, constructive discharge, fraud, defamation, emotional distress, pain
and suffering, breach of the implied covenant of good faith and fair dealing,
compensatory or punitive damages, interest, attorneys’ fees, and reinstatement
or re-employment.  If any court 

 A-1
 

rules that Executive’s waiver of the right to file any
administrative or judicial charges or complaints is ineffective, Executive
agrees not to seek or accept any money damages or any other relief upon the
filing of any such administrative or judicial charges or complaints.

Executive acknowledge that he/she has read and
understand Section 1542 of the California Civil Code which reads as follows: “A general release does not extend to claims which the creditor does
not know or suspect to exist in his or her favor at the time of executing the release,
which if known by him or her must have materially affected his or her
settlement with the debtor.” 
Executive hereby expressly waives and relinquishes all rights and
benefits under that section and any law of any jurisdiction of similar effect
with respect to his/her release of any unknown Claims Executive may have
against the Company.

Notwithstanding the foregoing, nothing in this Release
shall constitute a release by Executive of any claims or damages based on any
right Executive may have to enforce the Company’s executory obligations under
the Agreement, any right Executive may have to vested or earned compensation
and benefits, or Executive’s eligibility for indemnification under applicable
law, Company governance documents, or under any applicable insurance policy
with respect to Executive’s liability as an employee or officer of the Company.

If Executive is 40 years of age or older at the time
of the Qualifying Termination, Executive acknowledges that he/she is knowingly
and voluntarily waiving and releasing any rights he/she may have under
ADEA.  Executive also acknowledges that
the consideration given under the Agreement for the Release is in addition to
anything of value to which he/she was already entitled.  Executive further acknowledges that he/she
has been advised by this writing, as required by the ADEA, that:  (A) his/her waiver and release do not
apply to any rights or claims that may arise on or after the date he/she
executes this Release; (B) Executive has the right to consult with an attorney
prior to executing this Release; (C) Executive has twenty-one (21) days to
consider this Release (although he/she may choose to voluntarily execute this
Release earlier); (D) Executive has seven (7) days following the execution
of this Release to revoke the Release; and (E) this Release shall not be
effective until the date upon which the revocation period has expired, which
shall be the eighth (8th) day after this Release is executed by Executive,
without Executive’s having given notice of revocation.

Executive further
acknowledges that Executive has carefully read this Release, and knows and
understands its contents and its binding legal effect.  Executive acknowledges that by signing this
Release, Executive does so of Executive’s own free will, and that it is
Executive’s intention that Executive be legally bound by its terms.

	
   

  	
   

  	
   

  
	
  

  	
   

  	
  [NAME OF EXECUTIVE]

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Date:

  	
   

  

 

 A-2

APPENDIX
B

RELEASE

(Group Termination)

Certain capitalized terms used in this Release are
defined in the Change in Control Severance Agreement by and between DJO
Incorporated (the “Company”) and [NAME OF EXECUTIVE] (“Executive”)
dated as of the       day of           ,
20      (the “Agreement”)  which Executive has previously executed and
of which this Release is a part.

Pursuant to the Agreement, and in consideration of and
as a condition precedent to the payments and benefits provided under Section
4(b)(ii), (b)(iii), (c), (d) and (e) of the Agreement, Executive hereby
furnishes the Company with this Release.

Executive hereby confirms his/her obligations under
the Company’s proprietary information and inventions agreement.

On Executive’s own behalf and on behalf of Executive’s
heirs, estate and beneficiaries, Executive hereby waives, releases, acquits and
forever discharges the Company, and each of its Subsidiaries and affiliates,
and each of their respective past or present officers, directors, agents, servants,
employees, shareholders, predecessors, successors and assigns, and all persons
acting by, through, under, or in concert with them, or any of them, of and from
any and all suits, debts, liens, contracts, agreements, promises, claims,
liabilities, demands, causes of action, costs, expenses, attorneys’ fees,
damages, indemnities and obligations of every kind and nature, in law, equity,
or otherwise, known and unknown, fixed or contingent, suspected and
unsuspected, disclosed and undisclosed (“Claims”), from the beginning of
time to the date hereof, including without limitation, Claims that arose as a
consequence of Executive’s employment with the Company, or arising out of the
termination of such employment relationship, or arising out of any act committed
or omitted during or after the existence of such employment relationship, all
up through and including the date on which this Release is executed, including,
but not limited to, Claims which were, could have been, or could be the subject
of an administrative or judicial proceeding filed by Executive or on Executive’s
behalf under federal, state or local law, whether by statute, regulation, in
contract or tort.  This Release includes,
but is not limited to:  (1) Claims for
intentional and negligent infliction of emotional distress; (2) tort Claims for
personal injury; (3) Claims or demands related to salary, bonuses, commissions,
stock, stock options, or any other ownership interest in the Company, vacation
pay, fringe benefits, expense reimbursements, severance pay, front pay, back
pay or any other form of compensation; (4) Claims for breach of contract; (5)
Claims for any form of retaliation, harassment, or discrimination; (6) Claims
pursuant to any federal, state or local law or cause of action including, but
not limited to, the federal Civil Rights Act of 1964, as amended, the federal
Age Discrimination in Employment Act of 1967, as amended (“ADEA”), the
federal Employee Retirement Income Security Act of 1974, as amended, the
federal Americans with Disabilities Act of 1990, the California Fair Employment
and Housing Act, as amended, and the California Labor Code; and (7) all other
Claims based on tort law, contract law, statutory law, common law, wrongful
discharge, constructive discharge, fraud, defamation, emotional distress, pain
and suffering, breach of the implied covenant of good faith and fair dealing,
compensatory or punitive damages, interest, attorneys’ fees, and reinstatement
or re-employment.  If any court 

 B-1
 

rules that Executive’s waiver of the right to file any
administrative or judicial charges or complaints is ineffective, Executive
agrees not to seek or accept any money damages or any other relief upon the
filing of any such administrative or judicial charges or complaints.

Executive acknowledge that he/she has read and
understand Section 1542 of the California Civil Code which reads as follows: “A general release does not extend to claims which the creditor does
not know or suspect to exist in his or her favor at the time of executing the
release, which if known by him or her must have materially affected his or her
settlement with the debtor.” 
Executive hereby expressly waives and relinquishes all rights and
benefits under that section and any law of any jurisdiction of similar effect
with respect to his/her release of any unknown Claims Executive may have
against the Company.

Notwithstanding the foregoing, nothing in this Release
shall constitute a release by Executive of any claims or damages based on any
right Executive may have to enforce the Company’s executory obligations under
the Agreement, any right Executive may have to vested or earned compensation
and benefits, or Executive’s eligibility for indemnification under applicable
law, Company governance documents, or under any applicable insurance policy
with respect to Executive’s liability as an employee or officer of the Company.

If Executive is 40 years of age or older at the time
of the Qualifying Termination, Executive acknowledges that he/she is knowingly
and voluntarily waiving and releasing any rights he/she may have under
ADEA.  Executive also acknowledges that
the consideration given under the Agreement for the Release is in addition to
anything of value to which he/she was already entitled.  Executive further acknowledges that he/she
has been advised by this writing, as required by the ADEA, that:  (A) his/her waiver and release do not
apply to any rights or claims that may arise on or after the date he/she
executes this Release; (B) Executive has the right to consult with an attorney
prior to executing this Release; (C) Executive has forty-five (45) days to
consider this Release (although he/she may choose to voluntarily execute this
Release earlier); (D) Executive has seven (7) days following the execution
of this Release to revoke the Release; (E) this Release shall not be
effective until the date upon which the revocation period has expired, which
shall be the eighth (8th) day after this Release is executed by Executive,
without Executive’s having given notice of revocation; and (F) Executive has
received with this Release a detailed list of job titles and ages of all
employees who were terminated in this group termination and the ages of all
employees of the Company in the same job classification or organizational unit
who were not terminated.

Executive further
acknowledges that Executive has carefully read this Release, and knows and
understands its contents and its binding legal effect.  Executive acknowledges that by signing this
Release, Executive does so of Executive’s own free will, and that it is
Executive’s intention that Executive be legally bound by its terms.

	
  

  	
   

  
	
   

  	
  [NAME OF
  EXECUTIVE]

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Date:

  	
   

  

 

 B-2Exhibit 4.1

SECURITIES PURCHASE
AGREEMENT

THIS SECURITIES PURCHASE AGREEMENT
(this “Agreement”), dated as of
September 19, 2007, by and among Open Energy Corporation, a Nevada corporation (the “Company”) and the investors listed on the Schedule of Buyers attached
hereto (individually, a “Buyer”
and collectively, the “Buyers”).

WITNESSTH

A.            WHEREAS, the Company and each Buyer is executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”), and Rule 506 of
Regulation D (“Regulation D”)
as promulgated by the United States Securities and Exchange Commission (the “SEC”) under the Securities Act;

B.            WHEREAS, the Company has authorized two new series of convertible notes
of the Company, in the forms attached hereto as Exhibit A (the “Series A Notes”) and Exhibit B (the “Series B Notes” and together with the Series A Notes, the “Notes”) which Notes shall be convertible into the Company’s
common stock, par value $0.001 per share (the ”Common Stock”) (as converted, the “Series A
Conversion Shares” or “Series B Conversion Shares” and collectively, the “Conversion Shares”), in accordance with the terms of the
Notes;

C.            WHEREAS, each Buyer wishes to purchase, and the Company wishes to sell,
upon the terms and conditions stated in this Agreement, (i) that aggregate
principal amount of the Notes set forth opposite such Buyer’s name in column
(3) on the Schedule of Buyers attached hereto (which aggregate amount for all
Buyers shall be up to $35,000,000 (“Aggregate Principal Amount
of Series A Notes and Series B Notes”) in amounts as subscribed by
the Buyers), and (ii) warrants, in substantially the form attached hereto as Exhibit
C (the “Series A  Warrants”) and Exhibit D (the “Series B Warrants” together with the Series A Warrants, and
collectively, the “Warrants”) to
acquire up to that number of additional shares of Common Stock set forth
opposite such Buyer’s name in column (4) of the Schedule of Buyers (as
exercised, the “Series A Warrant Shares” and “Series B Warrant Shares” and collectively, the “Warrant Shares”).  Of the $35,000,000 principal amount of Notes
being issued in connection with this transaction, not more than $15,000,000
principal amount of Notes shall be designated as Series A Notes not more than
$20,000,000 principal amount of Notes shall be designated as Series B Notes;

D.            WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the Company and the purchasers of the Series A Notes and Series A
Warrants are executing and delivering a Registration Rights Agreement,
substantially in the form attached hereto as Exhibit E (the “Registration Rights Agreement”), pursuant
to which the Company has agreed to provide certain registration rights with
respect to the Registrable Securities (as defined in the Registration Rights
Agreement) under the Securities Act and the rules and regulations promulgated
thereunder, and applicable state securities laws; and

E.             WHEREAS, the Notes, the Conversion Shares, the Warrants and the Warrant
Shares collectively are referred to herein as the “Securities.”

NOW, THEREFORE, in
consideration of the mutual covenants and other agreements contained in this
Agreement, the Company and each
Buyer hereby agree as follows:

1.             PURCHASE AND SALE
OF NOTES AND WARRANTS.

(a)   Purchase of Notes and Warrants.

(i)            Notes and Warrants.  Subject to the
satisfaction (or waiver) of the conditions set forth in Sections 6 and 7 below,
the Company shall issue and sell to each Buyer, and each Buyer severally, but
not jointly, agrees to purchase from the Company on either the Initial Closing
Date (as defined below) or the Final Closing Date (as defined below),
(x) a principal amount of Notes as is set forth opposite such Buyer’s name
in column (3) on the Schedule of Buyers, and (y) Warrants to acquire up to
that number of Warrant Shares as is set forth opposite such Buyer’s name in
column (4) on the Schedule of Buyers, (the “Closing”).

(ii)           Closing.  The date and time of the initial Closing (the
“Initial Closing”)
shall be no later than 10:00 a.m., New York City time on September 18, 2007 (or
such later date as is mutually agreed to by the Company and each Buyer) (the “Initial Closing Date”) after notification
of satisfaction (or waiver) of the conditions to the Closing set forth in
Sections 6 and 7 below, with any additional closings (the “Additional Closing Dates”) to take place on
or before October 31, 2007 (“Termination Date”)
with the date of the final Closing (the “Final
Closing”) occurring on before the Termination Date (the “Final Closing Date”), each to occur at the
offices of Richardson & Patel LLP, 405 Lexington Avenue, 26th Floor, New
York, New York 10174 unless the Company and the Buyers (as defined below) agree
otherwise.  The Initial Closing and the
Final Closing may be referred to herein collectively as a “Closing.”

(iii)          Purchase Price.  The aggregate purchase price for the Notes
and Warrants to be purchased by each such Buyer at each Closing (the “Purchase Price”) shall be the amount set forth opposite each
Buyer’s name in column (5) of the Schedule of Buyers.  The aggregate Purchase Price amount for all
Buyers in the Initial Closing shall be no less than $20,000,000.  The aggregate Purchase Price for all Buyers
in the Additional Closings shall be no more than $35,000,000 less the aggregate
Purchase Price of Securities in the Initial Closing.

(b)   Form of Payment.  On the Initial Closing Date, each of the
Additional Closings and the Final Closing Date, (i) each Buyer, shall deliver
its Purchase Price, to the Escrow Agent (as defined below) pursuant to Section
2 of the Escrow Agreement, dated as of September 12, 2007 by and among the
Company, the Agent (as defined in Section 3(h)) and American Stock Transfer and
Trust Company (“Escrow Agent”), a
financial institution chartered under the laws of the State of New York,
attached hereto as Exhibit F (the “Escrow
Agreement”), or to the Company directly as directed by the Agent (as
defined below), and (ii) the Company shall deliver to each Buyer the Notes
(allocated in the principal amounts as such Buyer shall request) which such
Buyer is then purchasing hereunder along with the Warrants (allocated in the
amounts as such Buyer shall request) which such Buyer is purchasing, in each
case duly executed on behalf of the Company and registered in the name of such
Buyer or its designee.

 2
 

2.             BUYER’S
REPRESENTATIONS AND WARRANTIES.  Each
Buyer, severally and not jointly, represents and warrants with respect to only
itself that:

(a)   Investment Purpose.  Such Buyer is acquiring the Notes and
Warrants, and upon conversion of the Notes and exercise of the Warrants, will
acquire the Conversion Shares issuable upon conversion of the Notes and the
Warrant Shares issuable upon exercise of the Warrants, as principal for its own
account and not with a view towards, or for resale in connection with, the
public sale or distribution thereof, except pursuant to sales registered or
exempted under the Securities Act; provided, however, that by making the
representations herein, such Buyer reserves the right to dispose of the
Securities at any time in accordance with or pursuant to a registration
statement or an exemption under the Securities Act and pursuant to the
applicable terms of the Transaction Documents (as defined in Section
3(b)).  Such Buyer is acquiring the
Securities hereunder in the ordinary course of its business.  Such Buyer does not presently have any
agreement or understanding, directly or indirectly, with any Person (as defined
in Section 3(r)) to distribute any of the Securities.

(b)   Accredited Investor Status.  At the time such Buyer was offered the
Securities, it was, at the date hereof, and on each date on which it exercises
any Warrants, it will be either: (i) an “accredited investor” as defined in
Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act or
(ii) a “qualified institutional buyer” as defined in Rule 144A(a) under the
Securities Act.  Such Buyer is not
required to be registered as a broker-dealer under Section 15 of the Securities
Exchange Act of 1934, as amended (the “Exchange
Act”).

(c)   Reliance on Exemptions.  Such Buyer understands that the Securities
are being offered and sold to it in reliance on specific exemptions from the
registration requirements of United States federal and state securities laws
and that the Company is relying in part upon the truth and accuracy of, and
such Buyer’s compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of such Buyer
to acquire the Securities.

(d)   Information. 
Such Buyer and its advisors, if any, have been furnished with all
materials relating to the business, finances and operations of the Company and
materials deemed relevant to making an informed investment decision relating to
the offer and sale of the Securities that have been requested by such
Buyer.  Such Buyer and its advisors, if
any, have been afforded the opportunity to ask questions of the Company.  Neither such inquiries nor any other due
diligence investigations conducted by such Buyer or its advisors, if any, or
its representatives shall modify, amend or affect such Buyer’s right to rely on
the Company’s representations and warranties contained herein.  Such Buyer understands that its investment in
the Securities involves a high degree of risk and is able to afford a complete
loss of such investment.  Such Buyer has
sought such accounting, legal and tax advice as it has considered necessary to
make an informed investment decision with respect to its acquisition of the
Securities.

 3
 

(e)   No Governmental Review.  Such Buyer understands that no United States
federal or state agency or any other government or governmental agency has
passed on or made any recommendation or endorsement of the Securities or the
fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the Securities.

(f)    Transfer or Resale.  Such Buyer understands that except as
provided in the Registration Rights Agreement (which relates solely to the
Series A Conversion Shares and the Series A Warrant Shares): (i) the Securities
have not been and are not being registered under the Securities Act or any
state securities laws, and may not be offered for sale, sold, assigned or
transferred unless (A) subsequently registered thereunder, (B) such Buyer shall
have delivered to the Company an opinion of counsel, in a form reasonably
acceptable to the Company, to the effect that such Securities to be sold,
assigned or transferred may be sold, assigned or transferred pursuant to an
exemption from such registration, or (C) such Buyer provides the Company with
reasonable assurance that such Securities can be sold, assigned or transferred
pursuant to Rule 144 or Rule 144A promulgated under the Securities Act, as
amended (or a successor rule thereto) (collectively, “Rule 144”),
notwithstanding the foregoing, the requirement to deliver a legal opinion as
set out in clause (B) above shall not apply to transfers to an affiliate of the
Buyer; (ii) any sale of the Securities made in reliance on Rule 144 may be made
only in accordance with the terms of Rule 144 and further, if Rule 144 is not
applicable, any resale of the Securities under circumstances in which the
seller (or the Person through whom the sale is made) may be deemed to be an
underwriter (as that term is defined in the Securities Act) may require
compliance with some other exemption under the Securities Act or the rules and
regulations of the SEC thereunder; and (iii) neither the Company nor any other
Person is under any obligation to register the Securities under the Securities
Act or any state securities laws or to comply with the terms and conditions of
any exemption thereunder.  The Securities
may be pledged in connection with a bona fide margin account or other loan or
financing arrangement secured by the Securities and such pledge of Securities
shall not be deemed to be a transfer, sale or assignment of the Securities
hereunder, and no Buyer effecting a pledge of Securities shall be required to
provide the Company with any notice thereof or otherwise make any delivery to
the Company pursuant to this Agreement or any other Transaction Document (as
defined in Section 3(b)), including, without limitation, this Section
2(f).  The Company reserves the right to
place stop transfer instructions against the shares and certificates for the
Conversion Shares and/or Warrant Shares.

(g)   Legends. 
Such Buyer understands that the certificates or other instruments
representing the Notes and Warrants and, solely with respect to the Series A
Conversion Shares and the Series A Warrant Shares until such time as the resale
of the Series A Conversion Shares and the Series A Warrant Shares have been
registered under the Securities Act as contemplated by the Registration Rights
Agreement, the stock certificates representing the Conversion Shares and the
Warrant Shares, except as set forth below, shall bear any legend as required by
the “blue sky” laws of any state and a restrictive legend in

 4
 

substantially the following form (and a stop-transfer order may be
placed against transfer of such stock certificates):

NEITHER THE ISSUANCE NOR SALE OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES
ARE [CONVERTIBLE]  [EXERCISABLE] HAVE BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS.  THE SECURITIES HAVE BEEN ACQUIRED SOLELY FOR
INVESTMENT PURPOSES AND NOT WITH A VIEW TOWARD RESALE AND MAY NOT BE OFFERED
FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR (B) AN OPINION OF COUNSEL, IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY,
THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT
TO RULE 144 OR RULE 144A UNDER SAID ACT. 
NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING
ARRANGEMENT SECURED BY THE SECURITIES. [ANY
TRANSFEREE OF THIS NOTE SHOULD CAREFULLY REVIEW THE TERMS OF THIS NOTE,
INCLUDING SECTIONS 3(d)(iii) AND 17(a) HEREOF. 
THE PRINCIPAL AMOUNT REPRESENTED BY THIS NOTE AND, ACCORDINGLY, THE
SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE LESS THAN THE AMOUNTS SET
FORTH ON THE FACE HEREOF PURSUANT TO SECTION 3(d)(iii) OF THIS NOTE.]

The legend set forth above shall be removed and the
Company shall issue a certificate without such legend to the holder of the
Securities upon which it is stamped, if, unless otherwise required by state
securities laws, (i) such Securities are registered for resale under the
Securities Act, (ii) in connection with a sale, assignment or other transfer,
such holder provides the Company with an opinion of a law firm reasonably
acceptable to the Company (with Richardson & Patel LLP being deemed
acceptable), in a form reasonably acceptable to the Company, to the effect that
such sale, assignment or transfer of the Securities may be made without
registration under the applicable requirements of the Securities Act, or (iii)
such holder provides the Company with reasonable assurance that the Securities
can be sold, assigned or transferred pursuant to Rule 144 or Rule 144A.

(h)   Authorization.  Such Buyer has full power and authority to
enter into the Transaction Documents to which it is a signatory.  All action on the part of the Buyer, its
officers, directors and stockholders necessary for authorization, execution and
delivery of the Transaction documents has been taken or will be taken prior to
the Closing.  Each such agreement shall
constitute the legal, valid and binding obligations of such Buyer enforceable
against such Buyer in accordance with their respective terms, except as such
enforceability

 5
 

may be limited by general principles of equity or to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium,
liquidation and other similar laws relating to, or affecting generally, the
enforcement of applicable creditors’ rights and remedies.

(i)    No Conflicts.  The execution, delivery and performance by
such Buyer of this Agreement and the Registration Rights Agreement (solely with
respect to the Buyers of Series A Notes, Series A Warrants and Shares) and the
consummation by such Buyer of the transactions contemplated hereby and thereby
will not (i) result in a violation of the organizational documents of such
Buyer 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 such Buyer is a party, or (iii)
result in a violation of any law, rule, regulation, order, judgment  or decree (including federal and state
securities laws) applicable to such Buyer, except in the case of clauses (ii)
and (iii) above, for such conflicts, defaults, rights or violations which would
not, individually or in the aggregate, reasonably be expected to have a
material adverse effect on the ability of such Buyer to perform its obligations
hereunder.

(j)    Residency. 
Such Buyer is a resident of that jurisdiction specified below its
address on the Schedule of Buyers.

(k)   No Legal Advice From the Company.  Such Buyer 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.  Such Buyer 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 Transaction Documents, the
transactions contemplated herein or therein or the securities laws of any
jurisdiction.

(l)    Buyer’s Broker Fees.  Each Buyer shall be responsible for the
payment of any placement agent’s fees, financial advisory fees, or brokers’
commissions for placement agents, financial advisors and/or brokers engaged by
such Buyer relating to or arising out of the transactions contemplated hereby.

(m)  Certain Trading Activities.  Other than the transactions contemplated
herein, since the time that such Buyer was first contacted by the Company, the
Agent or any other Person regarding this investment in the Company, neither the
Buyer nor any Affiliate of such Buyer which (x) had knowledge of the
transactions contemplated hereby, (y) has or shares discretion relating to such
Buyer’s investments or trading or information concerning such Buyer’s
investments and (z) is subject to such Buyer’s review or input concerning such
Affiliate’s investments or trading (collectively, “Trading Affiliates”) has directly
or indirectly, nor has any Person acting on behalf of or pursuant to any
understanding with such Buyer or Trading Affiliate, effected or agreed to
effect any transactions in the securities of the Company.  Such Buyer hereby covenants and agrees not
to, and shall cause its Trading Affiliates not to, engage, directly or
indirectly, in any transactions in the securities of the Company or involving
the Company’s securities during the period from the

 6
 

date hereof until the earlier to occur of (i) such time as the
transactions contemplated by this Agreement are first publicly announced as
described in Section 4(h) hereof or (ii) such time as this Agreement is
terminated in full pursuant to Section 8 hereof.  Other than to other Persons party to this
Agreement and those expressly acknowledged by the Company, such Buyer has
maintained the confidentiality of the existence and terms of this
transaction  “Short Sales” include, without limitation, all “short sales” as
defined in Rule 200 promulgated under Regulation SHO under the Exchange Act and
all types of direct and indirect stock pledges, forward sale contracts,
options, puts, calls, short sales, swaps and similar arrangements (including on
a total return basis), and sales and other transactions through non-U.S.
broker-dealers or foreign regulated brokers. 
Such Buyer acknowledges the SEC’s position set forth in Item 65, Section
5 under Section A, of the Manual of Publicly Available Telephone
Interpretations, dated July 1997, compiled by the Office of Chief Counsel,
Division of Corporation Finance, and such Buyer will adhere to such position.

3.             REPRESENTATIONS
AND WARRANTIES OF THE COMPANY.  Except
as set forth in the SEC Documents (as defined in Section 3(k)) the Disclosure
Schedule attached hereto (the “Disclosure Schedule”),
which Disclosure Schedule shall be deemed a part hereof and shall qualify any
representation made herein to the extent of the disclosure contained in the
corresponding section of the Disclosure Schedule, the Company hereby represents
and warrants to each of the Buyers that, as of the date hereof and as of each
of the Initial Closing Date, Additional Closing Dates and the Final Closing
Date:

(a)   Organization and Qualification.  The Company and its “Subsidiaries”
(which for purposes of this Agreement means any joint venture or any entity in
which the Company, directly or indirectly, owns any of the capital stock or
holds an equity or similar interest) are entities validly existing and in good
standing under the laws of the jurisdiction in which they are formed, and have
the requisite power and authorization to own their properties and to carry on
their business as now being conducted. 
Each of the Company and its Subsidiaries is duly qualified as a foreign
entity to do business and, is in good standing in every jurisdiction in which
its ownership of property or 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 reasonably be expected to have a
Material Adverse Effect.  As used in this
Agreement, “Material Adverse Effect” means any
material adverse effect on the business, properties, assets, operations,
results of operations or condition (financial or otherwise) of the Company and
its Subsidiaries, individually or taken as a whole, or on the transactions
contemplated hereby or in the other Transaction Documents or by the agreements
and instruments to be entered into in connection herewith or therewith, or on
the authority or ability of the Company to perform in any material respect its
obligations under the Transaction Documents (as defined below).

(b)   Authorization; Enforcement; Validity.  Except as contemplated herein: (i) the
Company has the requisite corporate power and authority to enter into and
perform its obligations under this Agreement, the Notes, the Warrants, the
Registration Rights Agreement, the Transfer Agent Instructions (as defined in
Section 5(b)), and each of the other agreements entered into by the parties
hereto in connection with the transactions contemplated by this Agreement
(collectively, the “Transaction Documents”)
and to issue

 7
 

the Securities in accordance with the terms hereof and thereof; (ii)
the execution and delivery of the Transaction Documents by the Company and the
consummation by the Company of the transactions contemplated hereby and
thereby, including, without limitation, the issuance of the Notes and the
Warrants, the reservation for issuance and the issuance of the Conversion
Shares  issuable upon
conversion of the Notes and the reservation for issuance and issuance of
Warrant Shares issuable upon exercise of the Warrants have been duly authorized
by the Company’s Board of Directors and, except as set forth in Section 3(e),
no further filing, consent, or authorization is required by the Company, its
Board of Directors or its stockholders; and (iii) this Agreement and the other
Transaction Documents of even date herewith have been duly executed and
delivered by the Company and constitute the legal, valid and binding
obligations of the Company, enforceable against the Company in accordance with
their respective 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 applicable creditors’ rights and remedies.

(c)   Issuance of Securities.  The issuance of the Notes and Warrants are
duly authorized and are free from all taxes, liens and charges with respect to
the issue thereof.  At Closing, the
Company shall have reserved from its duly authorized capital stock  not less than the sum of 120% of the
maximum number of shares of Common Stock issuable (x) upon conversion of the Notes
(without taking into account any limitations on the conversion of the Notes set
forth in the Notes), and (y) upon exercise of the Warrants (without taking into
account any limitations on the exercise of the Warrants set forth in the
Warrants).  Upon conversion or exercise
in accordance with the Notes or the Warrants, as the case may be, the
Conversion Shares and the Warrant Shares, respectively, will be validly issued,
fully paid and nonassessable and free from all preemptive or similar rights,
taxes, liens and charges with respect to the issue thereof, with the holders
being entitled to all rights  accorded
to a holder of Common Stock.  Assuming
the accuracy of each of the representations and warranties set forth in Section
2 of this Agreement, the offer and issuance by the Company of the Securities is
exempt from registration under the Securities Act.

(d)   No Conflicts. 
Except as set forth in the Disclosure Schedule or the SEC Documents, the
execution, delivery and performance of the Transaction Documents by the Company
and the consummation by the Company of the transactions contemplated hereby and
thereby (including, without limitation, the issuance of the Notes and Warrants
and reservation for issuance and issuance of the Conversion Shares and the Warrant
Shares) will not (i) result in a violation of any articles of incorporation,
articles of formation, any articles of designations or other constituent
documents of the Company or any of its Subsidiaries, any capital stock of the
Company or any of its Subsidiaries or bylaws of the Company or any of its
Subsidiaries or (ii) conflict with, or constitute a default (or an event which
with notice or lapse of time or both would become a default) in any respect
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 (iii) result in a violation of any law,
rule, regulation, order, judgment or decree (including foreign, federal and
state securities laws and regulations and the rules and regulations of the NASD’s
OTC Bulletin Board (the “Principal Market”))
applicable to the Company or any

 8
 

of its Subsidiaries or by which any property or asset of the Company or
any of its Subsidiaries is bound or affected, except in the case of each of
clauses (ii) and (iii), such as would not be reasonably likely to have or
reasonably be expected to result in a Material Adverse Effect.

(e)   Consents. 
Neither the Company nor any of its Subsidiaries is required to obtain
any consent, authorization or order of, or make any filing or registration
with, any court, governmental agency or any regulatory or self-regulatory
agency or any other Person in order for it to execute, deliver or perform any of
its obligations under or contemplated by the Transaction Documents, in each
case in accordance with the terms hereof or thereof, except for the following
consents, authorizations, orders, filings and registrations (none of which is
required to be filed or obtained before the Closing): (i) the filing with the
SEC of one or more registration statements (“Registration
Statement”) in accordance with the requirements of the Registration
Rights Agreement and (ii) the filing of a listing application for the Conversion
Shares and the Warrant Shares with the Principal Market, if applicable, which
shall be done pursuant to the rules of the Principal Market, NASD or applicable
securities or “Blue Sky” laws of the states of the United States.  The Company and its Subsidiaries are unaware
of any facts or circumstances that might prevent the Company from obtaining or
effecting any of the registration, application or filings pursuant to the
preceding sentence.  The Company is not
in violation of the listing requirements of the Principal Market and has no
knowledge of any facts that would reasonably lead to delisting or suspension of
the Common Stock on the Principal Market in the foreseeable future.

(f)    Acknowledgement
Regarding Buyer’s Trading Activity. 
Anything in this Agreement or elsewhere herein to the contrary
notwithstanding (except as set forth in Section 2(m)), it is understood and
acknowledged by the Company (i) that none of the Buyers have been asked by the
Company to agree, nor has any Buyer agreed, to desist from purchasing or
selling, long and/or short, securities of the Company, or “derivative”
securities based on securities issued by the Company or to hold the Securities
for any specified term; (ii) that past or future open market or other
transactions by any Buyer, including Short Sales, and specifically including,
without limitation, Short Sales or “derivative” transactions, before or after
the Closing of this or future private placement transactions, may negatively
impact the market price of the Company’s publicly-traded securities; (iii) that
any Buyer, and counter-parties in “derivative” transactions to which any such
Buyer is a party, directly or indirectly, presently may have a “short” position
in the Common Stock, and (iv) that each Buyer shall not be deemed to have any
affiliation with or control over any arm’s length counter-party in any
“derivative” transaction.  The Company
further understands and acknowledges that (a) one or more Buyers may engage in
hedging activities at various times during the period that the Securities are
outstanding, including, without limitation, during the periods that the value
of the Warrant Shares deliverable with respect to Securities are being
determined and (b) such hedging activities (if any) could reduce the value of the
existing stockholders’ equity interests in the Company at and after the time
that the hedging activities are being conducted.  The Company acknowledges
that such aforementioned hedging activities do not constitute a breach of any
of the Transaction Documents.

 9
 

(g)   Acknowledgment Regarding Buyer’s Purchase of
Securities.  Except as set forth in
the Disclosure Schedule or the SEC Documents, the Company acknowledges and
agrees that each Buyer is acting solely in the capacity of an arm’s length
purchaser with respect to the Transaction Documents and the transactions
contemplated hereby and thereby and that no Buyer is (i) an officer or director
of the Company, (ii) an “affiliate” of the Company or any of its Subsidiaries
(as defined in Rule 144 of the 1933 Act) or (iii) to the knowledge of the
Company, a “beneficial owner” of more than 10% of the shares of Common Stock
(as defined for purposes of Rule 13d-3 of the Exchange Act.  The Company further acknowledges that no
Buyer is acting as a financial advisor or fiduciary of the Company or any of
its Subsidiaries (or in any similar capacity) with respect to the Transaction
Documents and the transactions contemplated hereby and thereby, and any advice
given by a Buyer or any of its representatives or agents in connection with the
Transaction Documents and the transactions contemplated hereby and thereby is
merely incidental to such Buyer’s purchase of the Securities.  The Company further represents to each Buyer
that the Company’s decision to enter into the Transaction Documents has been
based solely on the independent evaluation by the Company and its
representatives.

(h)   No General Solicitation; Placement Agent’s Fees.  Neither the Company, nor any of its
Subsidiaries or affiliates, nor any Person acting on its or their behalf,
including, without limitation, any Person related to each Buyer, has engaged in
any form of general solicitation or general advertising (within the meaning of
Regulation D) in connection with the offer or sale of the Securities.  The Company shall be responsible for the
payment of any of the Agent’s (as defined below) fees relating to or arising
out of the transactions contemplated hereby, including but not
limited to its outside counsel’s legal fees and expenses.  The Company acknowledges that it has engaged
Knight Capital Markets, LLC as placement agent (the “Agent”) in connection with the sale of the Securities.
The fees and expenses payable to the Agent are set forth in the Disclosure
Schedule.  Other than the Agent, neither
the Company nor any of its Subsidiaries has engaged any placement agent or
other agent in connection with the sale of the Securities.

(i)    Dilutive Effect.  The Company understands and acknowledges that
the number of Conversion Shares issuable upon conversion of the Notes and the
Warrant Shares issuable upon exercise of the Warrants will increase in certain
circumstances.  The Company further
acknowledges that its obligation to issue Conversion Shares upon conversion of
the Notes in accordance with this Agreement and the Notes  and
its obligation to issue the Warrant Shares upon exercise of the Warrants in
accordance with this Agreement and the Warrants is, in each case, absolute and
unconditional, regardless of the dilutive effect that such issuance may have on
the ownership interests of other stockholders of the Company.

(j)    Application of Takeover Protections; Rights
Agreement.  Except as set forth in
the Disclosure Schedule or the SEC Documents, the Company and its board of
directors have taken all necessary action in order to render inapplicable any
control share acquisition, business combination, poison pill (including any
distribution under a rights agreement) or other similar anti-takeover provision
under the Articles of Incorporation or the laws of the state of its incorporation
which is or could become applicable to any Buyer as a result of the
transactions contemplated by this Agreement, including, without limitation, the
Company’s issuance of the Securities and any Buyer’s ownership of the
Securities.

 10
 

(k)   SEC Documents; Financial Statements.  Except as set forth in the Disclosure
Schedule or the SEC Documents, during the two (2) years prior to the date
hereof, the Company has timely filed all reports, schedules, forms, statements
and other documents required to be filed by it with the SEC pursuant to the
reporting requirements of the Exchange Act (all of the foregoing filed prior to
the date hereof and all exhibits included therein and financial statements,
notes and schedules thereto and documents incorporated by reference therein
being hereinafter referred to as the “SEC Documents”),
or has received a valid extension of such time of filing and has filed all SEC
Documents prior to the expiration of any such extension.  The Company has delivered to the Buyers or
their respective representatives true, correct and complete copies of the SEC
Documents not available on the EDGAR system. 
As of their respective filing dates, the SEC Documents complied in all
material respects with the requirements of the Exchange Act and the rules and
regulations of the SEC promulgated thereunder applicable to the SEC Documents,
and none of the SEC Documents, at the time they were filed with the SEC,
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.  As of their
respective filing dates, the financial statements of the Company included in
the SEC Documents 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 Buyers which is not included in
the SEC Documents, including, without limitation, information referred to in
Section 2(d) of this Agreement or in the disclosure schedule, 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
circumstance under which they are or were made not misleading.

(l)    Absence of Certain Changes.  Since
the date of the latest audited financial statements included in the Company’s
Form 10-KSB filed on September 13, 2007 and except as specifically disclosed in
a subsequent SEC Report filed prior to the date hereof or as set forth the
Disclosure Schedule, (i) there has been no event, occurrence or development
that has had or that could reasonably be expected to result in a Material
Adverse Effect, or be required to be disclosed by the Company under applicable
securities laws on a registration statement filed with the SEC relating to an
issuance and sale by the Company of its Common Stock and which has not been
publicly announced, (ii) the Company has not incurred any liabilities
(contingent or otherwise) other than (A) trade payables and accrued expenses
incurred in the ordinary course of business consistent with past practice and
(B) liabilities not required to be reflected in the Company’s financial

 11
 

statements pursuant to GAAP or disclosed in filings made with the SEC,
(iii) the Company has not altered its method of accounting, (iv) the Company
has not declared or made any dividend or distribution of cash or other property
to its stockholders or purchased, redeemed or made any agreements to purchase
or redeem any shares of its capital stock and (v) the Company has not issued
any equity securities to any officer, director or Affiliate, except pursuant to
existing Company stock option plans or pursuant to conversion of outstanding
debt.  The Company does not have pending before
the SEC any request for confidential treatment of information.  Except as set forth in the Disclosure
Schedule or the SEC Documents, no event, liability or development has occurred
or exists with respect to the Company or its Subsidiaries or their respective
business, properties, operations or financial condition, that would be required
to be disclosed by the Company under applicable securities laws at the time
this representation is made or deemed made that has not been publicly disclosed
at least 1 Trading Day prior to the date that this representation is made.

(m)  Conduct of Business; Regulatory Permits.  Neither the Company nor any of its
Subsidiaries is in violation of any term of or in default under its respective
Certificates or Articles of Incorporation or its Bylaws or their organizational
charter or bylaws, respectively.  To the
Company’s knowledge, neither the Company nor any of its Subsidiaries is in
violation of any judgment, decree or order or any statute, ordinance, rule or
regulation applicable to the Company or its Subsidiaries, and neither the
Company nor any of its Subsidiaries will conduct its business in violation of
any of the foregoing, except for possible violations which could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.  Without limiting the
generality of the foregoing, the Company is not in violation of any of the
rules, regulations or requirements of the
Approved Market and has no knowledge of any facts or circumstances that would
reasonably lead to delisting or suspension of the Common Stock by its Approved
Market in the foreseeable future.  Since
February 1, 2004, (i) the Common Stock has been designated for quotation on the
Principal Market, (ii) trading in the Common Stock has not been suspended by
the SEC or the Principal Market and (iii) the Company has received no
communication, written or oral, from the SEC or the Principal Market regarding
the suspension or delisting of the Common Stock from the Principal Market.  Except as set forth in the Disclosure
Schedule or in the SEC Documents, the Company and its Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate regulatory
authorities necessary to conduct their respective businesses, except where the
failure to possess such certificates, authorizations or permits would not be
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect, and neither the Company nor any such Subsidiary has received any
written notice of proceedings relating to the revocation or modification of any
such certificate, authorization or permit.

(n)   Foreign Corrupt Practices.  Neither the Company nor any of its
Subsidiaries nor any director, officer, agent, employee or other Person acting
on behalf of the Company or any of its Subsidiaries has, in the course of its
actions for, or on behalf of, the Company or any of its Subsidiaries (i) used
any corporate funds for any unlawful contribution, gift, entertainment or other
unlawful expenses relating to political activity; (ii) made any direct or
indirect unlawful payment to any foreign or domestic government official or
employee from corporate funds; (iii) violated or is in violation of any
provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or
(iv) made any unlawful bribe, rebate, payoff, influence payment, kickback or
other unlawful payment to any foreign or domestic government official or
employee

 12
 

(o)   Sarbanes-Oxley Act.  To the knowledge of the Company, except as
set forth in the Disclosure Schedule or the SEC Documents, the Company is in
compliance with any and all applicable requirements of the Sarbanes-Oxley Act
of 2002 that are effective as of the date hereof, and any and all applicable
rules and regulations promulgated by the SEC thereunder that are effective as
of the date hereof.

(p)   Transactions With Affiliates.  Except as set forth in the SEC Documents
filed at least ten (10) days prior to the date hereof and other than the grant
of stock options disclosed on the Disclosure Schedule, none of the senior
executive officers or directors of the Company or any of its Subsidiaries is
presently a party to any transaction with the Company or any of its
Subsidiaries (other than for ordinary course services as senior executive
officers or 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
such senior executive officer or director or, to the knowledge of the Company
or any of its Subsidiaries, any corporation, partnership, trust or other entity
in which any such senior executive officer or director has a substantial
interest or is an officer, director, trustee or partner, in each case in excess
of $60,000 other than for (i) payment of salary or consulting fees for services
rendered, (ii) reimbursement for expenses incurred on behalf of the Company and
(iii) other employee benefits, including stock option agreements under any
stock option plan of the Company

(q)   Equity Capitalization.  As of the date hereof, the capitalization of
the Company is as set forth in the Disclosure Schedule or the SEC
Documents.  Except as disclosed in the
Disclosure Schedule or the SEC Documents: (i) none of the Company’s capital
stock is subject to preemptive rights or any other similar rights or any liens
or encumbrances suffered or permitted by the Company; (ii) 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, or exercisable or exchangeable for, any 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 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, or exercisable or exchangeable for, any capital stock of the
Company or any of its Subsidiaries; (iii) other than the Notes being issued
pursuant to this Agreement there are no outstanding debt securities, notes,
credit agreements, credit facilities or other agreements, documents or
instruments evidencing Indebtedness of the Company or any of its Subsidiaries
or by which the Company or any of its Subsidiaries is or may become bound; (iv)
there are no financing statements securing obligations in any material amounts,
either singly or in the aggregate, filed in connection with the Company or any
of its Subsidiaries; (v) 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); (vi) there are no outstanding securities or
instruments of

 13

the Company or any of its Subsidiaries which
contain any redemption or similar provisions, and there are no contracts,
commitments, understandings or arrangements by which the Company or any of its
Subsidiaries is or may become bound to redeem a security of the Company or any
of its Subsidiaries; (vii) there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance of
the Securities; (viii) the Company does not have any stock appreciation rights
or “phantom stock” plans or agreements or any similar plan or agreement; and
(ix) the Company and its Subsidiaries have no liabilities or obligations
required to be disclosed in the SEC Documents but not so disclosed in the SEC
Documents, other than those incurred in the ordinary course of the Company’s or
its Subsidiaries’ respective businesses and which, individually or in the
aggregate, do not or would not have a Material Adverse Effect.  The Company has furnished to the Buyers true,
correct and complete 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 Bylaws, as amended and as in
effect on the date hereof (the “Bylaws”), and
the terms of all securities convertible into, or exercisable or exchangeable
for, shares of Common Stock and the material rights of the holders thereof in
respect thereto.

(r)    Indebtedness and Other
Contracts.  Since the date of the
latest audited financial statements included in the Company’s Form 10-KSB filed
on September 13, 2007 and except as disclosed in the Disclosure Schedule or the
SEC Documents, neither the Company nor any of its Subsidiaries (i) has any
additional outstanding Indebtedness (as defined below), (ii) is a party to any
contract, agreement or instrument, the violation of which, or default under
which, by the other party(ies) to such contract, agreement or instrument could
reasonably be expected to result in a Material Adverse Effect, (iii) is in
violation of any term of or in default under any contract, agreement or
instrument relating to any Indebtedness, except where such violations and
defaults would not result, individually or in the aggregate, in a Material
Adverse Effect, or (iv) is a party to any contract, agreement or instrument
relating to any Indebtedness, the performance of which, in the judgment of the
Company’s officers, has or is expected to have a Material Adverse Effect.  For purposes of this Agreement:  (x) “Indebtedness”
of any Person means, without duplication, (A) all indebtedness for borrowed
money, (B) all obligations issued, undertaken or assumed as the deferred
purchase price of property or services, including (without limitation) “capital
leases” in accordance with generally accepted accounting principles (other than
trade payables entered into in the ordinary course of business), (C) all
reimbursement or payment obligations with respect to letters of credit, surety
bonds and other similar instruments, (D) all obligations evidenced by notes,
bonds, debentures or similar instruments, including obligations so evidenced
incurred in connection with the acquisition of property, assets or businesses,
(E) all indebtedness created or arising under any conditional sale or other
title retention agreement, or incurred as financing, in either case with
respect to any property or assets acquired with the proceeds of such
indebtedness (even though the rights and remedies of the seller or bank under
such agreement in the event of default are limited to repossession or sale of
such property), (F) all monetary obligations under any leasing or similar
arrangement which, in connection with generally accepted accounting principles,
consistently applied for the periods covered thereby, is classified as a
capital lease, (G) all indebtedness referred to in clauses (A) through (F)
above secured by (or for which the holder of such Indebtedness has an existing
right, contingent or otherwise,

 14
 

to be secured
by) any mortgage, lien, pledge, charge, security interest or other encumbrance
upon or in any property or assets (including accounts and contract rights)
owned by any Person, even though the Person which owns such assets or property
has not assumed or become liable for the payment of such indebtedness, and (H)
all Contingent Obligations in respect of indebtedness or obligations of others
of the kinds referred to in clauses (A) through (G) above; (y) “Contingent Obligation” means, as to any Person, any direct
or indirect liability, contingent or otherwise, of that Person with respect to
any indebtedness, lease, dividend or other obligation of another Person if the
primary purpose or intent of the Person incurring such liability, or the
primary effect thereof, is to provide assurance to the obligee of such
liability that such liability will be paid or discharged, or that any
agreements relating thereto will be complied with, or that the holders of such
liability will be protected (in whole or in part) against loss with respect
thereto; and (z) “Person” means
an individual or legal entity, including but not limited to a corporation, a
limited liability company, a partnership, a joint venture, a trust, an
unincorporated organization and a government or any department or agency
thereof.

(s)   Absence of Litigation.  To the knowledge of the Company, except as
set forth in the Disclosure Schedule or the SEC Documents, there is no action,
suit, proceeding, inquiry or investigation before or by the Principal Market,
any court, public board, government agency, self-regulatory organization or
body pending or, threatened against or affecting the Company or any of its
Subsidiaries, the Common Stock or any of the Company’s Subsidiaries or any of
the Company’s or its Subsidiaries’ officers or directors that, if adversely
decided against the Company, would have a Material Adverse Effect on the
Company.

(t)    Insurance.  Except as set forth in the Disclosure
Schedule or the SEC Documents, 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 have a
Material Adverse Effect.

(u)     Employee Relations.  Neither the Company nor any of its
Subsidiaries is a party to any collective bargaining agreement or employs any
member of a union.  The Company and its
Subsidiaries believe that their relations with their employees are good.  No executive officer of the Company or any of
its Subsidiaries (as defined in Rule 501(f) of the Securities Act) has notified
the Company or any such Subsidiary that such officer intends to leave the
Company or any such Subsidiary or otherwise terminate such officer’s employment
with the Company or any such Subsidiary. 
To the knowledge of the Company, no executive officer of the Company or
any of its Subsidiaries, is, or is now expected to be, in violation of any
material term of any employment contract, confidentiality, disclosure or
proprietary information agreement, non-competition agreement, or any other
contract or agreement or any restrictive covenant, and the continued employment
of each such

 15
 

executive
officer does not subject the Company or any of its Subsidiaries to any
liability with respect to any of the foregoing matters.  The Company and its Subsidiaries, to their
knowledge, are in compliance in all material respects with all federal, state,
local and foreign laws and regulations respecting labor, employment and
employment practices and benefits, terms and conditions of employment and wages
and hours, except where failure to be in compliance would not, either
individually or in the aggregate, reasonably be expected to result in a
Material Adverse Effect.

(v)   Title. Except as set
forth in the Disclosure Schedule or the SEC Documents, the Company and its
Subsidiaries have good and marketable title in fee simple to all real property
and good and marketable title to all personal property owned by them which is
material to the business of the Company and its Subsidiaries, in each case free
and clear of all liens, encumbrances and defects except such as are described
in the Disclosure Schedule or the SEC Documents or such as do not materially
affect the value of such property and do not interfere with the use made and
proposed to be made of such property by the Company and any of its
Subsidiaries.  Any real property and
facilities held under lease by the Company and any of 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.

(w)  Intellectual Property Rights.  The Company and its Subsidiaries own or
possess adequate rights or licenses to use all trademarks, service marks and
all applications and registrations therefor, trade names, patents, patent
rights, copyrights, original works of authorship, inventions, trade secrets and
other intellectual property rights (“Intellectual Property
Rights”) necessary to conduct their respective businesses as now
conducted.  None of the Company’s
registered, or applied for, Intellectual Property Rights, to the extent the
Company has such Intellectual Property Rights, have expired or terminated or
have been abandoned, or are expected to expire or terminate or expected to be
abandoned, within three years from the date of this Agreement.  The Company does not have any knowledge of
any infringement by the Company or its Subsidiaries of Intellectual Property
Rights of others.  There is no claim,
action or proceeding being made or brought, or to the knowledge of the Company,
being threatened, against the Company or its Subsidiaries regarding its
Intellectual Property Rights.  Neither
the Company nor any of its Subsidiaries is aware of any facts or circumstances
which might give rise to any of the foregoing infringements or claims, actions
or proceedings.  The Company and its
Subsidiaries have taken reasonable security measures to protect the secrecy,
confidentiality and value of all of their Intellectual Property Rights, except
where failure to do so would not, individually or in the aggregate, reasonably
be expected to have a Material Adverse Effect.

(x)    Environmental Laws.  Except as set forth in the Disclosure
Schedule or the SEC Documents, the Company and its Subsidiaries, to their knowledge,
(i) are in compliance with any and all Environmental Laws (as hereinafter
defined), (ii) have received all permits, licenses or other approvals required
of them under applicable Environmental Laws to conduct their respective
businesses, (iii) are in compliance with all terms and conditions of any such
permit, license or approval, (iv) do not own or operate any real property
contaminated with any substance that is in violation of Environmental Laws, and

 16
 

(v) is not
liable for any off-site disposal or contamination pursuant to any Environmental
Laws where, in each of the foregoing clauses (i), (ii), (iii), (iv) and (v) the
failure to so comply could be reasonably expected to have, individually or in
the aggregate, a Material Adverse Effect. 
There is no civil, criminal or administrative action, suit,
investigation, inquiry or proceeding pending or, to the knowledge of the
Company, threatened by or before any court or governmental authority against
the Company or any of its Subsidiaries relating to or arising from the Company’s
nor any Subsidiary’s non-compliance with any Environmental Laws, nor has the
Company received written notice of any alleged violations of Environmental
Laws.  The term “Environmental Laws” means all federal,
state, local or foreign laws relating to pollution or protection of human
health or the environment (including, without limitation, ambient air, surface
water, groundwater, land surface or subsurface strata), including, without
limitation, laws relating to emissions, discharges, releases or threatened
releases of chemicals, pollutants, contaminants, or toxic or hazardous
substances or wastes (collectively, “Hazardous
Materials”)  into the
environment, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Materials, as well as all authorizations, codes, decrees, demands or
demand letters, injunctions, judgments, licenses, notices or notice letters,
orders, permits, plans or regulations issued, entered, promulgated or approved
thereunder.

(y)   Subsidiary Rights.  The Company or one of its Subsidiaries has
the unrestricted right to vote, and (subject to limitations imposed by
applicable law) to receive dividends and distributions on, all capital securities
of its Subsidiaries as owned by the Company or such Subsidiary.

(z)    Tax Status.  Except as set forth in the Disclosure
Schedule or the SEC Documents, the Company and each of its Subsidiaries (i) has
made or filed all foreign, federal and state income and all other tax returns,
reports and declarations required by any jurisdiction to which it is subject,
(ii) 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 (iii) 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.

(aa)               Internal
Accounting and Disclosure 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 and liability accountability, (iii)
access to assets or incurrence of liabilities is permitted only in accordance
with management’s general or specific authorization and (iv) the recorded
accountability for assets and liabilities is compared with the existing assets
and liabilities at reasonable intervals and appropriate action is taken with
respect to any difference.  The Company maintains
disclosure controls and procedures (as such term is defined in Rule 13a-14
under the Exchange Act) that are

 17
 

effective in ensuring that information
required to be disclosed by the Company in the reports that it files or submits
under the Exchange Act is recorded, processed, summarized and reported, within
the time periods specified in the rules and forms of the SEC, including,
without limitation, controls and procedures designed in to ensure that
information required to be disclosed by the Company in the reports that it
files or submits under the Exchange Act is accumulated and communicated to the
Company’s management, including its principal executive officer or officers and
its principal financial officer or officers, as appropriate, to allow timely
decisions regarding required disclosure. 
During the twelve months prior to the date hereof neither the Company
nor any of its Subsidiaries have received any notice or correspondence from any
accountant relating to any potential material weakness in any part of the
system of internal accounting controls of the Company or any of its
Subsidiaries.

(bb)               Ranking of Notes.  The Notes shall be issued as general
obligations of the Company and on at least a pari passu priority with other
unsecured Indebtedness of the Company incurred prior to the date hereof and at
least pari passu with any unsecured Indebtedness incurred on or after the date
hereof.

(cc)               Off Balance
Sheet Arrangements.  There is no
transaction, arrangement, or other relationship between the Company and an
unconsolidated or other off balance sheet entity that is required to be
disclosed by the Company in its Exchange Act filings and is not so disclosed or
that otherwise would be reasonably likely to have a Material Adverse Effect.

(dd)               Investment
Company Status.  The Company is not,
and upon consummation of the sale of the Securities will not be, an “investment
company,” a company controlled by an “investment company” or an “affiliated
person” of, or “promoter” or “principal underwriter” for, an “investment
company” as such terms are defined in the Investment Company Act of 1940, as
amended.

(ee)               Transfer Taxes.  On each of the Initial Closing Date and the
Final Closing Date, all stock transfer or other taxes (other than income or
similar taxes) which are required to be paid in connection with the sale and
transfer of the Securities to be sold to each Buyer hereunder will be, or will
have been, fully paid or provided for by the Company, and all laws imposing
such taxes will be or will have been complied with.

(ff)                 Manipulation
of Price.  The Company has not, and
to its knowledge no one acting on its behalf has, (i) taken, directly or
indirectly, any action designed to cause or to result in the stabilization or
manipulation of the price of any security of the Company to facilitate the sale
or resale of any of the Securities, (ii) other than the Agent, sold, bid for,
purchased, or paid any compensation for soliciting purchases of, any of the
Securities, or (iii) other than the Agent, paid or agreed to pay to any person
any compensation for soliciting another to purchase any other securities of the
Company.

(gg)               Disclosure.  To the Company’s knowledge, all disclosure
provided by the Company to the Buyers regarding the Company or any of its
Subsidiaries, their business and the transactions contemplated hereby in the
Transaction Documents and the

 18
 

Schedules to this Agreement is true and
correct and does not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements made therein,
in the light of the circumstances under which they were made, not
misleading.  No event or circumstance has
occurred or information exists with respect to the Company or any of its
Subsidiaries or its or their business, properties, prospects, operations or
financial conditions, which, under applicable law, rule or regulation, requires
public disclosure or announcement by the Company but which has not been so
publicly announced or disclosed.

4.             COVENANTS.

(a)   Best Efforts.  Each party shall use its reasonable best
efforts to timely satisfy each of the conditions to be satisfied by it as
provided in Sections 6 and 7 of this Agreement.

(b)   Form D and Blue Sky.  The Company agrees to file a Form D with
respect to the Securities as required under Regulation D and to provide a copy
thereof to each Buyer promptly after such filing.  The Company shall, on or before the Initial
Closing Date, take such action as the Company shall reasonably determine is
necessary in order to obtain an exemption for or to qualify the Securities for
sale to the Buyers at the Closing pursuant to this Agreement under applicable
securities or “Blue Sky” laws of the states of the United States (or to obtain
an exemption from such qualification), and shall provide evidence of any such
action so taken to the Buyers on or prior to each of the Initial Closing Date
and the Final Closing Date.  The Company
shall make all filings and reports relating to the offer and sale of the
Securities required under applicable securities or “Blue Sky” laws of the
states of the United States following the Initial Closing Date or the Final
Closing Date, as the case may be.

(c)   Reporting Status.  Until the date on which the Investors (as
defined in the Registration Rights Agreement) shall have sold all the
Conversion Shares and Warrant Shares  and none of
the Notes  or Warrants is outstanding, (the “Reporting Period”), the Company shall file, in a timely
manner, all reports required to be filed with the SEC pursuant to the Exchange Act,
and the Company shall not terminate its status as an issuer required to file
reports under the Exchange Act even if the Exchange Act or the rules and
regulations thereunder would permit such termination.

(d)   Use of Proceeds.  The Company will use the proceeds from the
sale of the Securities for general corporate and working capital purposes and
not for (i) the repayment of any outstanding Indebtedness of the Company or any
of its Subsidiaries, except for the repayment of outstanding indebtedness as set
forth on the Disclosure Schedule, or (ii) redemption or repurchase of any of
its or its Subsidiaries’ equity securities.

(e)   Financial Information.  The Company agrees to send the following to
each Buyer during the Reporting Period (i) unless the following are filed with
the SEC through EDGAR and are available to the public through the EDGAR system,
within one (1) Business Day after the filing thereof with the SEC, a copy of
its Annual Reports and Quarterly Reports on Form 10-K, 10-KSB, 10-Q or 10-QSB,
any interim reports or any consolidated balance sheets, income statements,
stockholders’ equity statements and/or cash

 19
 

flow
statements for any period other than annual, any Current Reports on Form 8-K
and any registration statements (other than on Form S-8) or amendments filed
pursuant to the Securities Act, (ii) on the same day as the release thereof,
facsimile or e-mailed copies of all press releases issued by the Company or any
of its Subsidiaries, and (iii) copies of any notices and other information made
available or given to the stockholders of the Company generally,
contemporaneously with the making available or giving thereof to the
stockholders.  As used herein, “Business Day” means any day other than Saturday, Sunday or
other day on which commercial banks in the City of New York are authorized or
required by law to remain closed.

(f)    Listing.  The Company shall promptly secure the listing
of all of the Registrable Securities (as defined in the Registration Rights
Agreement), all of the Series A Conversion Shares and all of the Series A
Warrant Shares upon each national securities exchange and automated quotation
system, if any, upon which the Common Stock is then listed (subject to official
notice of issuance) and shall maintain, in accordance with the Notes and
Warrants, such listing of all Registrable Securities, Series A Conversion
Shares and Series A Warrant Shares from time to time issuable under the terms
of the Transaction Documents.  The
Company shall maintain the Common Stocks’ authorization for quotation on the
Principal Market or an Approved Market (as defined below).  Neither the Company nor any of its
Subsidiaries shall take any action which would be reasonably expected to result
in the delisting or suspension of the Common Stock on the Principal Market or
an Approved Market.  As used herein, “Approved Market” shall mean any of the
following: The New York Stock Exchange, The NASDAQ Global Select Market, The
NASDAQ Global Market, The NASDAQ Capital Market, the American Stock Exchange or
the NASD’s OTC Bulletin Board.  The
Company shall pay all fees and expenses in connection with satisfying its
obligations under this Section 4(f).

(g)   Pledge of Securities.  The Company acknowledges and agrees that the
Securities may be pledged by a Buyer in connection with a bona fide margin
agreement or other loan or financing arrangement that is secured by the
Securities.  The pledge of Securities
shall not be deemed to be a transfer, sale or assignment of the Securities
hereunder, and no Investor effecting a pledge of Securities shall be required
to provide the Company with any notice thereof or otherwise make any delivery
to the Company pursuant to this Agreement or any other Transaction Document,
including, without limitation, Section 2(f) hereof; provided that an Investor
and its pledgee shall be required to comply with the provisions of Section 2(f)
hereof in order to effect a sale, transfer or assignment of Securities to such
pledgee.  The Company hereby agrees to execute
and deliver such documentation as a pledgee of the Securities may reasonably
request in connection with a pledge of the Securities to such pledgee by an
Investor

(h)   Disclosure of Transactions
and Other Material Information.  The
Company shall (i) within forty-eight (48) hours following the date of this
Agreement issue a press release describing the material terms of the
transactions contemplated hereby, and (ii) by 8:30 a.m., New York City time on
or before the fourth Business Day immediately following the date of this
Agreement, file a Current Report on Form 8-K describing the terms of the
transactions contemplated by the Transaction Documents in the form required by
the Exchange Act and attaching the material Transaction Documents (including,
without

 20
 

limitation,
this Agreement, the form of the Notes, the form of the Warrants and the form of
the Registration Rights Agreement) as exhibits to such filing (including all
attachments, the “8-K Filing”).  The Company shall not, and shall cause each
of its Subsidiaries and its and each of their respective officers, directors,
employees and agents, not to, provide any Buyer with any material, nonpublic
information regarding the Company or any of its Subsidiaries from and after the
filing of the 8-K Filing with the SEC without the express written consent of
such Buyer.  From and after the deadline
specified above, if a Buyer has, or believes it has, received any such
material, nonpublic information regarding the Company or any of its
Subsidiaries, it shall provide the Company with written notice thereof.  The Company shall, within five (5) Trading
Days (as defined in the Notes) of receipt of such notice, make public
disclosure of such material, nonpublic information.  In the event of a breach of the foregoing
covenant by the Company, any of its Subsidiaries, or any of its or their
respective officers, directors, employees and agents, in addition to any other
remedy provided herein or in the Transaction Documents, a Buyer shall have the
right to make a public disclosure, in the form of a press release, public
advertisement or otherwise, of such material, nonpublic information without the
prior approval by the Company, its Subsidiaries, or any of its or their
respective officers, directors, employees or agents.  No Buyer shall have any liability to the Company,
its Subsidiaries, or any of its or their respective officers, directors,
employees, stockholders or agents for any such disclosure.  Subject to the foregoing, neither the
Company, its Subsidiaries nor any Buyer shall issue any press releases or any other
public statements with respect to the transactions contemplated hereby;
provided, however, that the Company shall be entitled, without the prior
approval of any Buyer, to make any press release or other public disclosure
with respect to such transactions (i) in substantial conformity with the 8-K
Filing and contemporaneously therewith and (ii) as is required by applicable
law and regulations.  Without the prior
written consent of any applicable Buyer, which consent shall not be
unreasonably withheld, delayed or conditioned, neither the Company nor any of
its Subsidiaries or affiliates shall disclose the name of such Buyer in any
filing, announcement, release or otherwise; provided, however, that such
consent shall be deemed to be given for any disclosure required by law in the
reasonable opinion of the Company or its counsel.

(i)    Restriction on Redemption
and Cash Dividends.  So long as
fifteen percent (15%) or more of the total dollar amount of Notes originally
issued remain outstanding, the Company shall not, directly or indirectly,
redeem, or declare or pay any cash dividend or distribution on, the Common
Stock without the prior express written consent of the holders of Notes
representing not less than 75% of the aggregate principal amount of the then
outstanding Notes.

(j)    Additional Notes; Variable
Securities; Dilutive Issuances.  So
long as fifteen percent (15%) or more of the total dollar amount of Notes
originally issued remain outstanding, the Company will not issue any Notes
other than to the Buyers as contemplated hereby and the Company shall not issue
any other securities that would cause a breach or default under the Notes.   For so long as any Notes or Warrants
originally issued remain outstanding, the Company shall not, in any manner,
enter into or affect any Dilutive Issuances (as defined in the Notes) if the
effect of such Dilutive Issuance is to cause the Company to be required to
issue upon conversion of any Note or exercise of any Warrant any shares of
Common Stock in excess of that number of shares of Common Stock which the
Company may issue upon conversion of the Notes and exercise of the Warrants
without breaching the Company’s obligations under the rules or regulations of
the Principal Market.

 21
 

(k)   Corporate Existence.  So long as any Buyer beneficially owns any
Securities, the Company shall not be party to any Fundamental Transaction (as
defined in the Notes) unless the Company is in compliance with the applicable
provisions governing Fundamental Transactions set forth in the Notes and the
Warrants.

(l)      Reservation of Shares.  The Company shall take all action necessary
to at all times have authorized and reserved for the purpose of issuance no
less than, from each of the Initial Closing Date and the Final Closing Date,
120% of the sum of the number of shares of Common Stock issuable (i) upon
conversion of the Notes issued at the Closing and (ii) upon exercise of the
Warrants issued at the Closing (without taking into account any limitations on
the Conversion of the Notes or exercise of the Warrants set forth in the Notes
and Warrants, respectively).

(m)  Conduct of Business.  The business of the Company and its
Subsidiaries shall not be conducted in violation of any law, ordinance or
regulation of any governmental entity, except where such violations would not
result, either individually or in the aggregate, in a Material Adverse Effect.

(n)   Delivery of Certificates.  Upon conversion or exercise of the Notes and
Warrants, respectively, any request for removal of restrictive legends on the
shares of Common Stock issuable in connection therewith, certificates for
shares of Common Stock will be delivered to the Investor within three (3)
Trading Days.  If such delivery is made
more than two (2) additional Trading Days after conversion or exercise or
request for removal of legend, as the case may be, the Company will compensate
the Investor at a rate of $100 per day for each of the first ten (10) Trading
Days and $200 per day thereafter for each $10,000 of securities. In such event,
after the first such ten (10) Trading Days noted above, the Investor will also
have right to rescind its conversion notice for the Notes and/or its exercise
notice for the Warrants. In addition, if the certificates have not been
delivered by the fifth (5th)
Trading Day, then, if the Investor has sold shares of Common Stock after the
conversion or exercise date, as the case may be, the Company will compensate
Investor for extra costs, if any, incurred to cover the sale, all as agreed
upon and reflected in the Transaction Documents.

(o)   Additional Issuances of
Securities.

(i)            For purposes of this Section 4(o) below,
the following definitions shall apply.

(1)           “Convertible Securities” means any stock or
securities (other than Options) convertible into or exercisable or exchangeable
for shares of Common Stock.

(2)           “Options”
means any rights, warrants or options to subscribe for or purchase shares of
Common Stock or Convertible Securities.

 22
 

(3)           “Common Stock Equivalents” means,
collectively, Options and Convertible Securities.

(4)           “Additional
Issuance Restrictions” shall mean the requirements set forth in
Section 4(o)(ii) and 4(o)(iii) below.

(ii)           From the date hereof
until 90 days after the Effective Date (as defined in the Registration Rights
Agreement), neither the Company nor any Subsidiary shall issue shares of Common
Stock or Common Stock Equivalents, other than pursuant to this Agreement or
upon the conversion of Notes or exercise of Warrants issued in connection with
this Agreement; provided, however, the 90 day period set forth in
this Section 4(o) shall be extended for the number of Trading Days during such
period in which (i) trading in the Common Stock is suspended by any Trading
Market, or (ii) following the Effective Date, the Registration Statement is not
effective or the prospectus included in the Registration Statement may not be
used by the Buyers for the resale of the Conversion Shares or Warrant Shares.

(iii)          During the period that any Note or Warrant remains outstanding,
notwithstanding whether or not an issuance of securities is deemed to be an
issuance of Excluded Securities (as defined in the Notes), the Company shall
not issue or sell, or agree to issue or sell Variable Equity Securities (as
defined below), or any securities of the Company pursuant to an Equity Line (as
defined below) structure or format, without obtaining the prior written
approval of each of the Buyers, with the exception of any such agreements,
transactions or Equity Lines existing as of the date hereof.  For purposes hereof, an “Equity Line” shall
mean a transaction involving a written agreement between the Company and an
investor or underwriter whereby the Company has the right to “put” its
securities to the investor or underwriter over an agreed period of time and at
an agreed price or price formula.  For
purposes hereof, the following shall be collectively referred to herein as, the
“Variable Equity Securities”: (A) any debt or equity securities which are
convertible into, exercisable or exchangeable for, or carry the right to
receive additional shares of Common Stock either (1) at any conversion,
exercise or exchange rate or other price that is based upon and/or varies with
the trading prices of or quotations for Common Stock at any time after the
initial issuance of such debt or equity security, or (2) with a fixed
conversion, exercise or exchange price that is subject to being reset at some
future date at any time after the initial issuance of such debt or equity
security due to a change in the market price of the Company’s Common Stock
since the date of initial issuance, or (B) any amortizing convertible security
which amortizes prior to its maturity date, where the Company is required to or
has the option to (or the investor in such transaction has the option to
require the Company to) make such amortization payments in shares of Common
Stock (whether or not such payments in stock are subject to certain equity
conditions), or (C) any debenture, note or preferred stock that is accompanied
by a number of warrants greater than 100% of the original principal amount,
divided by the Weighted Average Price at the time of closing of such debenture,
note or preferred stock, or (D) any Common Stock that is sold at a discount to
the market price at the time of closing that is greater than 10%, or (E) any
adjustable warrant where the number of shares issuable thereunder is subject to
increase, or (F) any common stock that is accompanied by a number of warrants
greater than 100% of the number of shares of

 23
 

common stock sold by the
Company in such transaction, or (G) any warrant, convertible security or other
Common Stock Equivalent with a conversion, exercise or exchange price that is
set at a price that is less than 70% of the initial Conversion Price of the
Note, or (H) any note, debenture or other debt obligation that is accompanied
by shares of Common Stock for which the additional consideration paid per share
of Common Stock is less than 90% of the Weighted Average Price at the time of
closing.  For purposes of the above, the “Weighted
Average Price” at time of closing shall mean the Weighted Average Price, as
defined in the Notes.  Any Buyer
shall be entitled to obtain injunctive relief against the Company to preclude
any such issuance, which remedy shall be in addition to any right to collect damages.

(iv)          Notwithstanding the
foregoing, this Section 4(o) shall not apply in respect of any Strategic
Investment Partner or Excluded Securities (as defined in the Notes), except
that no Variable Equity Securities or Equity Line transaction shall be deemed
to be included in the definition of Excluded Securities (as defined in the
Notes).  For purposes of this Section
4(o) and Section 4(r), “Strategic Investment
Partner” shall include, without limitation, any party with whom the
Company may enter into any business relationship whereby such party (i) invests
cash or other funds into the Company, (ii) enters into a joint venture with the
Company or (iii) enters into such other similar business arrangement.

(v)           The Company recognizes
that in the event that it breaches any of the requirements of this Section 4(o)
or of Section 4(t) below, that irreparable harm will result and any remedy at
law would be inadequate relief to the Buyers. 
The Company therefore agrees that the Buyers shall be entitled to seek
temporary and permanent injunctive relief in any such case without the
necessity of proving actual damages and without posting a bond or other
security.

(p)   Participation in Future
Financing.

(i)            From the date hereof
until the date that is the 12 month anniversary of the Effective Date, upon any
issuance by the Company or any of its Subsidiaries of Common Stock or Common
Stock Equivalents for cash consideration (a “Subsequent
Financing”), each Buyer shall have the right to participate in the
Subsequent Financing, on a pro rata basis, up to an amount up to 50% of the
Subsequent Financing (the “Participation
Maximum”) on the same terms, conditions and price provided for in
the Subsequent Financing. This Section 4(p)(i) shall not apply in the case of
an underwritten public offering of the Company’s Common Stock.

(ii)           At least 5 Trading Days
prior to the closing of the Subsequent Financing, the Company shall deliver to
each Buyer a written notice of its intention to effect a Subsequent Financing (“Pre-Notice”), which Pre-Notice shall ask
such Buyer if it wants to review the details of such financing (such additional
notice, a “Subsequent Financing Notice”). 
Upon the request of a Buyer, which shall be delivered to the Company within one
(1) Trading Day of the Company’s delivery of a Pre-Notice, and only upon a
request by such Buyer, for a Subsequent Financing Notice, the Company shall
promptly, but no later than one (1) Trading Day after such request, deliver a

 24
 

Subsequent Financing Notice to such
Buyer.  The Subsequent Financing Notice shall describe in reasonable
detail the proposed terms of such Subsequent Financing, the amount of proceeds
intended to be raised thereunder and the Person or Persons through or with whom
such Subsequent Financing is proposed to be effected and shall include a term
sheet or similar document relating thereto as an attachment.

(iii)          Any Buyer desiring to
participate in such Subsequent Financing must provide written notice to the
Company by not later than 5:30 p.m. (New York City time) on the 5th Trading Day after all of the Buyers have
received the Pre-Notice that the Buyer is willing to participate in the
Subsequent Financing, the amount of the Buyer’s participation, and that the
Buyer has such funds ready, willing, and available for investment on the terms
set forth in the Subsequent Financing Notice. 
If the Company receives no notice from a Buyer as of such 5th Trading Day, such Buyer shall be deemed to
have notified the Company that it does not elect to participate.

(iv)          If by 5:30 p.m. (New
York City time) on the 5th Trading Day after all of the Buyers have
received the Pre-Notice, notifications by the Buyers of their willingness to
participate in the Subsequent Financing (or to cause their designees to
participate) is, in the aggregate, less than the total amount of the Subsequent
Financing, then the Company may effect the remaining portion of such Subsequent
Financing on the terms and with the Persons set forth in the Subsequent
Financing Notice.

(v)           If by 5:30 p.m. (New
York City time) on the 5th Trading Day after all of the Buyers have
received the Pre-Notice, the Company receives responses to a Subsequent
Financing Notice from Buyers seeking to purchase more than the aggregate amount
of the Participation Maximum, each such Buyer shall have the right to purchase
its Pro Rata Portion (as defined below) of the Participation Maximum.  “Pro Rata Portion” means the ratio of (x)
the Subscription Amount of Securities purchased on the Closing Date by a Buyer
participating under this Section 4(p) and (y) the sum of the aggregate
Subscription Amounts of Securities purchased on the Closing Date by all Buyers
participating under this Section 4(p).

(vi)          The Company must provide
the Buyers with a second Subsequent Financing Notice, and the Buyers will again
have the right of participation set forth above in this Section 4(q), if the
Subsequent Financing subject to the initial Subsequent Financing Notice is not
consummated for any reason on the terms set forth in such Subsequent Financing
Notice within 60 Trading Days after the date of the initial Subsequent
Financing Notice.

Notwithstanding the foregoing, this Section 4(p) shall not apply in
respect of (i) any Excluded Securities (as defined in the Notes), or (ii) an
underwritten public offering of Common Stock.

(q)   Company’s Disclosure of
Material, Non-Public Information. Notwithstanding anything to the contrary
stated herein, if the Company, in connection with this financing, discloses
material, non-public information to the Buyers, including without limitation
the items set forth on the Disclosure Schedule (collectively, the “Information”), in addition to the existence
and terms of the financing, the Company covenants that the

 25
 

Information
will be disclosed in the ordinary course of its business, either by Form 8-K or
press release, or both, on or before the first Business Day after the Initial
Closing, or on or before the first Business Day after any Additional Closing if
additional material non-public information is disclosed to the Buyers after the
Initial Closing, but in any event the Company shall make public disclosure of
all material non-public information that has been disclosed to the Buyers by
not later than September 30, 2007, at which point the Buyers will no longer be
in possession of any material, non-public information.  The Company covenants and agrees that
thereafter, neither it nor any other Person acting on its behalf will provide
any Buyer or its agents or counsel with any information that the Company
believes constitutes material non-public information, unless prior thereto such
Buyer shall have executed a written agreement regarding the confidentiality and
use of such information.  The Company
understands and confirms that each Buyer shall be relying on the foregoing
representations in effecting transactions in securities of the Company.  In the event of a breach of the foregoing
covenant by the Company, or any of its Subsidiaries, or any of its or their
respective officers, directors, employees and agents, in addition to any other
remedy provided herein or in the Transaction Documents, the Company shall
publicly disclose any material, non-public information in a Form 8-K within
five (5) Business Days of the date that it discloses such information to the
Buyer.  In the event of a breach of
any of the foregoing covenant by the Company, any of its Subsidiaries, or any
of its or their respective officers, directors, employees and agents, in
addition to any other remedy provided herein or in the Transaction Documents, a
Buyer shall have the right to make a public disclosure, in the form of a press
release, public advertisement or otherwise, of such material, nonpublic
information without the prior approval by the Company. No Buyer shall have any
liability to the Company, its Subsidiaries, or any of its or their respective
officers, directors, employees, stockholders or agents for any such disclosure.

(r)    Shareholder Issuance Vote
Upon National Listing.  If the
Company, at any time while any of the Notes or Warrants are outstanding,
becomes listed on a National Exchange (as defined below)(a “National Listing”), and the rules or
regulations of such National Exchange limit the number of shares of Common
Stock which the Company may issue upon conversion or exercise, as applicable,
of the Notes and Warrants (the amount of such limit is referred to herein as
the “Exchange Cap Amount”), then,
within thirty (30) days of the date of such National Listing, the Company shall
(i) prepare a proxy statement, (ii) file a preliminary and definitive proxy
statement with the SEC and (iii) mail the definitive proxy statement to its
shareholders, requesting and recommending that they vote affirmatively (a “Shareholder Issuance Vote”) on a proposal
to approve the issuance, under the applicable rules of such National Exchange,
of all of the Conversion Shares and Warrant Shares and other shares of Common
Stock issuable pursuant to the Transaction Documents without regard to the
Exchange Cap Amount and to eliminate any prohibitions under applicable law or
the rules or regulations of any stock exchange, interdealer quotation system or
other self-regulatory organization with jurisdiction over the Company or any of
its securities on the Company’s ability to issue shares of Common Stock in
excess of the Exchange Cap Amount (the shareholder approval of such proposal is
referred to herein as the “Shareholder
Issuance Approval”).  The
Shareholder Issuance Approval, if required hereunder, shall occur before the
date that is ninety (90) days after the date of the National Listing (the “Shareholder Issuance Voting Deadline”).  For purposes hereof, “National Exchange”
shall mean an Approved Market other than NASD’s OTC Bulletin Board.

 26

(s)   Retention of Transfer Agent.  The Company will engage the services of a
transfer agent for its Common Stock that is a participant in the Depository
Trust Company’s Full Fast Program prior to the Initial Closing.

(t)    Limitation On Sale Or
Disposition Of Intellectual Property to Related Parties.  So long as any portion of the Notes remain
outstanding, so long as the Company shall have any obligation under the Notes
or so long as any of the Warrants remain outstanding, the Company shall not
sell, convey, dispose of, spin off or assign any or all of its Intellectual
Property Rights (as defined in Section 3(w) above), or the rights to receive
proceeds from patent licensing agreements, patent infringement litigation or
other litigation related to such Intellectual Property Rights, in each case
without Buyer’s written consent, to any Related Party (as defined below).   For purposes hereof, “Related Party” shall mean any of
the Company’s or any Subsidiary’s officers, directors, persons who were
officers or directors at any time during the previous two (2) years,
stockholders who beneficially own five percent (5%) or more of the Common
Stock, Strategic Investment Partners or Affiliates (as defined below) or (ii)
with any individual related by blood, marriage, or adoption to any such
individual or with any entity in which any such entity or individual owns a
five percent (5%) or more beneficial interest. 
“Affiliate”
for purposes hereof means, with respect to any person or entity, another person
or entity that, directly or indirectly, (i) has a ten percent (10%) or more
equity interest in that person or entity, (ii) has ten percent (10%) or more
common ownership with that person or entity, (iii) controls that person or
entity, or (iv) shares common control with that person or entity.  “Control” or “Controls” for purposes hereof means that a person or
entity has the power, direct or indirect, to conduct or govern the policies of
another person or entity

(u)   Right of First Negotiation.  For a period of twelve (12) months from the
date hereof, if the Company intends to raise additional capital by the issuance
or sale of common stock of the Company, including without limitation shares of
any class of common stock or any securities convertible or exercisable into
shares of common stock (whether the offering is conducted by the Company,
underwriter, placement agent or any third party) the Company shall be obligated
to offer to the Buyers, subject to similar rights of other security holders, on
a pro rata basis, in an amount of up to 50% of such issuance or sale of common
stock or securities convertible or exercisable into shares of common stock, by
providing in writing the principal amount of capital it intends to raise and
outline of the material terms of such capital raise, prior to the offering such
issuance or sale of capital stock to any third parties including, but not
limited to, current or former officers or directors, current or former
shareholders and/or investors of the obligor, underwriters, brokers, agents or
other third parties.  The Buyers shall
have five (5) business days from receipt of such notice of the sale or issuance
of capital stock to accept or reject all or a portion of such capital raising
offer.  Notwithstanding the foregoing,
this Section 4(u) shall not apply to the issuance or sale of common stock of
the Company in an underwritten public offering.

5.             REGISTER; TRANSFER
AGENT INSTRUCTIONS.

(a)   Register.  The Company shall maintain at its principal
executive offices (or such other office or agency of the Company as it may
designate by notice to each holder of Securities), a register for the Notes and
the Warrants in which the Company shall record

 27
 

the name and
address of the Person in whose name the Notes and  the Warrants have been issued (including the name and
address of each transferee), the principal amount of Notes held by such Person,
the number of Conversion Shares issuable upon conversion of the Notes and the
number of Warrant Shares issuable upon exercise of the Warrants held by such
Person.  The Company shall keep the
register open and available at all times during business hours for inspection
of any Buyer or its legal representatives.

(b)   Transfer Agent Instructions.  The Company shall issue irrevocable
instructions to its transfer agent, and any subsequent transfer agent, to issue
certificates or credit shares to the applicable balance accounts at The
Depository Trust Company (“DTC”),
registered in the name of each Buyer or its respective nominee(s), for the
Conversion Shares and the Warrant Shares issued at the Closing or upon
conversion of the Notes or exercise of the Warrants in such amounts as
specified from time to time by each Buyer to the Company upon conversion of the
Notes or exercise of the Warrants in the form of Exhibit G attached hereto
(the “Transfer Agent Instructions”).  The Company warrants that no instruction
other than the Transfer Agent Instructions referred to in this Section 5(b),
and stop transfer instructions to give effect to Section 2(g) hereof, will be
given by the Company to its transfer agent, and that the Conversion Shares and
the Warrant Shares shall otherwise be freely transferable on the books and
records of the Company as and to the extent provided in this Agreement and the
other Transaction Documents.  If a Buyer effects
a sale, assignment or transfer of the Securities in accordance with Section
2(f), the Company shall permit the transfer and shall promptly instruct its
transfer agent to issue one or more certificates or credit shares to the
applicable balance accounts at DTC in such name and in such denominations as
specified by such Buyer to effect such sale, transfer or assignment.  .  In
the event that such sale, assignment or transfer involves Conversion Shares or
Warrant Shares sold, assigned or transferred pursuant to an effective
registration statement or pursuant to Rule 144, the transfer agent shall issue
such Securities to the Buyer, assignee or transferee, as the case may be,
without any restrictive legend.  The Company
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to a Buyer. 
Accordingly, the Company acknowledges that the remedy at law for a
breach of its obligations under this Section 5(b) will be inadequate and
agrees, in the event of a breach or threatened breach by the Company of the
provisions of this Section 5(b), that a Buyer shall be entitled, in addition to
all other available remedies, to an order and/or injunction restraining any
breach and requiring immediate issuance and transfer, without the necessity of
showing economic loss and without any bond or other security being required.

(c)   Additional Relief.  If the Company shall fail for any reason or
for no reason to issue to such holder unlegended certificates or to credit the
holder’s balance account with DTC within two (2) Trading Days of receipt of
documents necessary for the removal of legend set forth above, then the Company
will compensate the holder at a rate of $100 per day for each of the first ten
(10) Trading Days and $200 per day thereafter for each $10,000 of
securities.  If the Company shall fail
for any reason or for no reason to issue to such holder unlegended certificates
or to credit the holder’s balance account with DTC within five (5) Trading Days
of receipt of documents necessary for the removal of legend set forth above
(the “Deadline Date”) and if on or
after the Trading Day (as defined in the Warrants) immediately following such
Deadline Date, the holder purchases (in an open market transaction or
otherwise) shares of Common Stock to deliver in satisfaction of a sale

 28
 

by the holder
of shares of Common Stock that the holder anticipated receiving from the
Company, then the Company shall, within three (3) Trading Days after the holder’s
request and in the holder’s discretion, pay cash to the holder in an amount
equal to the holder’s total purchase price (including brokerage commissions, if
any) for the shares of Common Stock so purchased, at which point the Company’s
obligation to deliver such certificate (and to issue such shares of Common
Stock) shall terminate.

6.             CONDITIONS TO THE
COMPANY’S OBLIGATION TO SELL.

The obligation of the Company hereunder to issue and
sell the Notes and the related Warrants to each Buyer at the Closing is subject
to the satisfaction, at or before each of the Initial Closing Date, Additional
Closing Dates and the Final Closing Date, as the case may be, of each of the
following conditions, provided that these conditions are for the Company’s sole
benefit and may be waived by the Company at any time in its sole discretion by
providing each Buyer with prior written notice thereof:

(i)            Such Buyer shall have executed each of the
Transaction Documents to which it is a party and delivered the same to the
Company.

(ii)           Such Buyer and each other Buyer shall have
delivered to the Company the Purchase Price for the Notes and the related
Warrants being purchased by such Buyer at the Closing by wire transfer of
immediately available funds pursuant to the wire instructions provided by the
Company.

(iii)          The representations and warranties of such
Buyer shall be true and correct in all material respects (except for those
representations and warranties that are qualified by materiality or Material
Adverse Effect, which shall be true and correct in all respects) as of the date
when made and as of the Initial Closing Date, the Additional Closing Date or
the Final Closing Date, as the case may be, as though made at that time (except
for representations and warranties that speak as of a specific date, which
shall be true and correct as of such specified date), and such Buyer shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by such Buyer at or prior to the Initial Closing Date,
Additional Closing Date or the Final Closing Date, as the case may be.

7.             CONDITIONS TO EACH
BUYER’S OBLIGATION TO PURCHASE.

The obligation of each Buyer hereunder to purchase the
Notes and the related Warrants at the Closing is subject to the satisfaction,
at or before each of the Initial Closing Date, Additional Closing Dates and the
Final Closing Date, as the case may be, of each of the following conditions,
provided that these conditions are for each Buyer’s sole benefit and may be
waived by such Buyer at any time in its sole discretion by providing the
Company with prior written notice thereof:

(i)    The Company shall have duly executed and delivered
(physically or by electronic copy) to such Buyer (i) each of the Transaction
Documents (not including the Registration Rights Agreement or the Transfer
Agent Instructions to each Buyer of Series B Notes and Series B Warrants), (ii)
the Notes (allocated in such principal amounts as such Buyer

 29
 

shall request), being purchased by such Buyer at the Closing pursuant
to this Agreement, and (iii) the related Warrants (allocated in such amounts as
such Buyer shall request) being issued to such Buyer at the Closing pursuant to
this Agreement in an amount equal to (A) 75% of the number of Series A
Conversion Shares underlying Series A Notes purchased by Buyer at an exercise
price per Series A Warrant Share of 120% of the closing price of the common
stock on the date immediately prior to the Initial Closing, subject to
adjustment, and (B) 100% of the Series B Conversion Shares, underlying Series B
Notes purchased by Buyer at an exercise price per Series B Warrant Share of
110% of the closing price of the common stock on the date immediately prior to
the Initial Closing, subject to adjustment .

(ii)           Such Buyer shall have received the opinion
of Wilson Sonsini Goodrich & Rosati Professional Corporation, the Company’s
outside counsel (“Opinion of Counsel”),
dated as of the Closing Date each Additional Closing Date and the Final Closing
Date, in substantially the form of Exhibit H attached hereto.

(iii)          The Company shall have delivered to such
Buyer of Notes and Warrants a copy of the Transfer Agent Instructions, in the
form of Exhibit G attached hereto, which instructions shall have
been delivered to the Company’s transfer agent.

(iv)          The Company shall have delivered to such
Buyer a certificate evidencing the formation and good standing of the Company
and each of its Subsidiaries in such entity’s jurisdiction of formation issued
by the Secretary of State (or comparable office) of such jurisdiction, as of a
date within 10 days of the Initial Closing Date.

(v)           The Company shall have delivered to such
Buyer a certificate evidencing the Company’s qualification as a foreign
corporation and good standing issued by the Secretary of State (or comparable
office) in each jurisdiction in which the Company has so qualified, as of a
date within 10 days of the Initial Closing Date.

(vi)          The Company shall have delivered to such
Buyer a certificate, executed by the Secretary of the Company and dated as of
each of the Initial Closing Date, Additional Closing Date(s) and the Final
Closing Date, as the case may be, as to (i) the resolutions consistent with
Section 3(b) as adopted by the Company’s Board of Directors in a form
reasonably acceptable to such Buyer, (ii) the Articles of Incorporation and
(iii) the Bylaws, each as in effect at the Closing, in the form attached hereto
as Exhibit I.

(vii)         The representations and warranties of the
Company shall be true and correct in all material respects (except for those
representations and warranties that are qualified by materiality or Material
Adverse Effect, which shall be true and correct in all respects) as of the date
when made and as of each of the Initial Closing Date, Additional Closing
Date(s) and the Final Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date, which shall be
true and correct as of such specified date) and the Company shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by the Transaction Documents to be
performed, satisfied or complied with by the Company at or prior to the Initial
Closing Date, the Additional Closing Date(s) and the Final Closing Date.  Such Buyer shall have received a certificate,
executed by the Chief Executive Officer of the Company, dated as of each of the
Initial Closing Date, the Additional Closing Date(s) and the Final Closing
Date, to the foregoing effect and as to such other matters as may be reasonably
requested by such Buyer in the form attached hereto as Exhibit J.

 30
 

(viii)        Each of the Company’s officers, directors and
their respective affiliates shall have entered into a lock-up agreement with the
Company, in the form attached hereto as Exhibit K.

(ix)           The Common Stock (A) shall be designated for
quotation or listed on the Principal Market and (B) shall not have been
suspended, as of the Initial Closing Date, Additional Closing Date or the Final
Closing Date, by the SEC or the Principal Market from trading on the Principal
Market nor shall suspension by the SEC or the Principal Market have been
threatened, as of the Initial Closing Date or the Final Closing Date, either
(I) in writing by the SEC or the Principal Market or (II) by falling below the
minimum listing maintenance requirements of the Principal Market.

(x)            The Company shall have delivered to such
Buyer such other documents relating to the transactions contemplated by this
Agreement as such Buyer or its counsel may reasonably request.

8.             TERMINATION.  This Agreement may be terminated by any
Buyer, as to such Buyer’s obligations hereunder only and without any effect
whatsoever on the obligations between the Company and the other buyers, by written
notice to the other parties, if the Initial Closing has not been consummated on
or before September 21, 2007, or, after the Initial Closing has been
consummated if the Final Closing has not been consummated on or before October
31, 2007; provided, however, that no such termination will affect the right of
any party to sue for any breach by the other party (or parties).

9.             MISCELLANEOUS.

(a)   Governing Law; Jurisdiction;
Jury Trial.  All questions concerning
the construction, validity, enforcement and interpretation of this Agreement
shall be governed by the internal laws of the State of New York, without giving
effect to any choice of law or conflict of law provision or rule (whether of
the State of New York or any other jurisdictions) that would cause the
application of the laws of any jurisdictions other than the State of New
York.  Each party hereby irrevocably
submits to the exclusive jurisdiction of the state and federal courts sitting
in The City of New York, Borough of Manhattan, for the adjudication of any
dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein, and hereby irrevocably waives, and
agrees not to assert in any suit, action or proceeding, any claim that it is
not personally subject to the jurisdiction of any such court, that such suit,
action or proceeding is brought in an inconvenient forum or that the venue of
such suit, action or proceeding is improper. 
Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it
under this Agreement and agrees that such service shall constitute good and
sufficient service of process and notice thereof.  Nothing contained herein shall be deemed to
limit in any way any right to serve process in any manner

 31
 

permitted by
law.  EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES
NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR
IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION
CONTEMPLATED HEREBY.

(b)   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; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original,
not a facsimile signature.

(c)   Headings.  The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.

(d)   Severability.  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.

(e)   Entire Agreement; Amendments.  This Agreement and the other Transaction
Documents supersede all other prior oral or written agreements between the
Buyers, the Company, their affiliates and Persons acting on their behalf with
respect to the matters discussed herein, and this Agreement, the other
Transaction Documents and the instruments referenced herein and therein contain
the entire understanding of the parties with respect to the matters covered
herein and therein and, except as specifically set forth herein or therein,
neither the Company nor any Buyer makes any representation, warranty, covenant
or undertaking with respect to such matters. 
No provision of this Agreement may be amended other than by an
instrument in writing signed by the Company and the holders of at least 85% of
the aggregate number of Conversion Shares and Warrant Shares issued and
issuable hereunder, and any amendment to this Agreement made in conformity with
the provisions of this Section 9(e) shall be binding on all Buyers and holders
of Securities as applicable.  No
provision hereof may be waived other than by an instrument in writing signed by
the party against whom enforcement is sought. 
No such amendment shall be effective to the extent that it applies to
less than all of the holders of the applicable Securities then
outstanding.  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 the Transaction Documents unless the same
consideration also is offered to all of the parties to the Transaction
Documents, holders of Notes or holders of the Warrants, as the case may
be.  The Company has not, directly or
indirectly, made any agreements with any Buyers relating to the terms or
conditions of the transactions contemplated by the Transaction Documents except
as set forth in the Transaction Documents. 
Without limiting the foregoing, the Company confirms that, except as set
forth in this Agreement, no Buyer has made any commitment or promise or has any
other obligation to provide any financing to the Company or otherwise.

 32
 

(f)    Notices.  Any and all notices or other communications
or deliveries required or permitted to be provided hereunder shall be in
writing and shall be deemed given and effective on the earliest of (a) the date
of transmission, if such notice or communication is delivered via facsimile at
the facsimile number set forth on the signature pages attached hereto prior to
5:30 p.m. (New York City time) on a Trading Day, (b) the next Trading Day after
the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile number set forth on the signature pages attached
hereto on a day that is not a Trading Day or later than 5:30 p.m. (New York
City time) on any Trading Day, (c) the 2nd Trading Day
following the date of mailing, if sent by U.S. nationally recognized overnight
courier service, or (d) upon actual receipt by the party to whom such notice is
required to be given.  The address for
such notices and communications shall be as set forth on the signature pages
attached hereto.

(g)   Successors and Assigns.  This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and
assigns, including any purchasers of the Notes or the Warrants.  The Company shall not assign this Agreement
or any rights or obligations hereunder without the prior written consent of the
holders of at least 75% of the aggregate number of Conversion Shares and
Warrant Shares issued and issuable hereunder, including by way of a Fundamental
Transaction.  A Buyer may assign some or
all of its rights hereunder without the consent of the Company, in which event
such assignee shall be deemed to be a Buyer hereunder with respect to such
assigned rights

(h)   No Third Party Beneficiaries.  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.

(i)    Survival.  Unless this Agreement is terminated under
Section 8, the representations and warranties of the Company and the Buyers
contained in Sections 2 and 3, and the agreements and covenants set forth in
Sections 4, 5 and 9 shall survive the Closing. 
Each Buyer shall be responsible only for its own representations,
warranties, agreements and covenants hereunder.

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

(k)   Indemnification.  By the Company.  In consideration of each Buyer’s execution
and delivery of the Transaction Documents and acquiring the Securities
thereunder and in addition to all of the Company’s other obligations under the
Transaction Documents, the Company shall defend, protect, indemnify and hold
harmless each Buyer and each other holder of the Securities and all of their
stockholders, partners, members, officers, directors, employees and direct or
indirect investors and any of the foregoing Persons’ agents or other
representatives (including, without limitation, those retained in connection
with the transactions contemplated by this Agreement) (collectively, the “Buyer Indemnitees”)
from and against any and all actions, causes of action, suits, claims, losses,

 33
 

costs,
penalties, fees, liabilities and damages, and expenses in connection therewith
(irrespective of whether any such Buyer 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 any Buyer Indemnitee 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 the Transaction Documents 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 the
Transaction Documents 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 Buyer Indemnitee by a third party (including for
these purposes a derivative action brought on behalf of the Company) and
arising out of or resulting from (i) the execution, delivery, performance or
enforcement of the Transaction Documents or any other certificate, instrument
or document contemplated hereby or thereby, (ii) any transaction financed or to
be financed in whole or in part, directly or indirectly, with the proceeds of
the issuance of the Securities, (iii) any disclosure made by such Buyer
pursuant to Section 4(g), or (iv) the status of such Buyer or holder of the
Securities as an investor in the Company pursuant to the transactions
contemplated by the Transaction Documents. 
The Company shall not be obligated to indemnify a Buyer Indemnitee
pursuant to this Section 9(k) for Indemnified Liabilities to the extent such
Indemnified Liabilities are caused by acts of gross negligence or willful
misconduct on the part of such Buyer Indemnitee.  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 that is permissible under applicable law.  Except as otherwise set forth herein, the
mechanics and procedures with respect to the rights and obligations under this
Section 9(k) shall be the same as those set forth in Section 6 of the
Registration Rights Agreement.

(l)    No Strict Construction.  The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual intent,
and no rules of strict construction will be applied against any party.

(m)   Remedies.  The Company, each Buyer, and each holder of
the Securities shall have all rights and remedies set forth in the Transaction
Documents and all rights and remedies which such Company or holders have been granted
at any time under any other agreement or contract and all of the rights which
such holders have under any law.  Any
Person having any rights under any provision of this Agreement shall be
entitled to enforce such rights specifically (without posting a bond or other
security), to recover damages by reason of any breach of any provision of this
Agreement and to exercise all other rights granted by law.  Furthermore, the Company recognizes that in
the event that it fails to perform, observe, or discharge any or all of its
obligations under the Transaction Documents, any remedy at law may prove to be
inadequate relief to the Buyers.  The
Company therefore agrees that the Buyers shall be entitled to seek temporary and
permanent injunctive relief in any such case without the necessity of proving
actual damages and without posting a bond or other security.

 34
 

(n)   Rescission and Withdrawal
Right.  Notwithstanding anything to
the contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever any Buyer exercises a right, election, demand
or option under a Transaction Document and the Company does not perform, in a
timely manner, its related obligations within the periods therein provided,
then such Buyer may rescind or withdraw, in its sole discretion from time to
time upon written notice to the Company, any relevant notice, demand or
election in whole or in part without prejudice to its future actions and
rights.

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

(p)   Independent Nature of Buyers’
Obligations and Rights.  The
obligations of each Buyer under any Transaction Document are several and not
joint with the obligations of any other Buyer, and no Buyer shall be
responsible in any way for the performance of the obligations of any other
Buyer under any Transaction Document. 
Nothing contained herein or in any other Transaction Document, and no
action taken by any Buyer pursuant hereto or thereto, shall be deemed to
constitute the Buyers as, and the Company acknowledges that the Buyers do not
so constitute, a partnership, an association, a joint venture or any other kind
of entity, or create a presumption that the Buyers are in any way acting in
concert or as a group, and the Company will not assert any such claim with
respect to such obligations or the transactions contemplated by the Transaction
Documents and the Company acknowledges that the Buyers are not acting in
concert or as a group with respect to such obligations or the transactions
contemplated by the Transaction Documents. 
The Company acknowledges and each Buyer confirms that it has independently
participated in the negotiation of the transaction contemplated hereby with the
advice of its own counsel and advisors. 
Each Buyer shall be entitled to independently protect and enforce its
rights, including, without limitation, the rights arising out of this Agreement
or out of any other Transaction Documents, and it shall not be necessary for
any other Buyer to be joined as an additional party in any proceeding for such
purpose.

[Signature Pages Follow]

 35

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

	
  Open Energy Corporation

  	
  Address for Notice:

  
	
   

  	
  514 Via de la Valle, Suite 200

  
	
   

  	
  Solana Beach, CA 92075

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ David Saltman

  	
   

  	
  Facsimile: (858) 794-8811

  
	
   

  	
  Name: David Saltman

  	
  Attention: David Saltman,

  
	
   

  	
  Title: Chief Executive Officer

  	
  Chief Executive Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  With a copy to (which
  shall not constitute notice):

  	
  Address for Notice:

  
	
   

  	
  12235 El Camino Real, Suite 200

  
	
  Wilson Sonsini Goodrich
  & Rosati

  	
  San Diego, CA 92130

  
	
  Attention: Martin J.
  Waters, Esq.

  	
   

  

 

[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGE FOR BUYER FOLLOWS]

[BUYER SIGNATURE PAGES TO OPEN
ENERGY CORPORATION SECURITIES PURCHASE AGREEMENT]

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

	
  Name of Buyer:

  	
  The Quercus Trust

  	
   

  
	
   

  
	
  Signature of Authorized Signatory of Buyer:

  	
   /s/ David Gelbaum

  	
   

  
	
   

  
	
  Name of Authorized Signatory:

  	
   David Gelbaum

  	
   

  
	
   

  
	
  Title of Authorized Signatory:

  	
   Trustee

  	
   

  
	
   

  
	
  Email Address of Buyer:

  	
   

  	
   

  
	
   

  
	
  Fax Number of Buyer:

  	
   

  	
   

  
									

 

Address
for Notice of Buyer:             2309 Santiago Drive

Newport Beach, CA 92660

Address
for Delivery of Securities for Buyer (if not same as address for notice):

Principal Amount of Series A Note: $

Principal
Amount of Series B Note: $20,000,000

Series A Warrant Shares:

Series
B Warrant Shares: 40,000,000

EIN Number:  [PROVIDE THIS UNDER
SEPARATE COVER]

 37
 

SCHEDULE OF NOTES
AND WARRANT BUYERS

	
  (1)

  	
   

  	
  (2)

  	
   

  	
  (3)

  	
   

  	
  (4)

  	
   

  	
  (5)

  	
   

  	
  (6)

  	
   

  
	
  Buyer

  	
   

  	
  Address and

  Facsimile Number

  	
   

  	
  Aggregate

  Principal

  Amount of

  Series A

  Notes

  	
   

  	
  Number of

  Series A

  Warrant

  Shares

  	
   

  	
  Aggregate

  Purchase Price

  	
   

  	
  Legal

  Representative’s

  Address and Facsimile

  Number

  	
   

  
	
     

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
     

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
     

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

	
  Buyer

  	
   

  	
  Address and

  Facsimile Number

  	
   

  	
  Aggregate

  Principal

  Amount of

  Series B

  Notes

  	
   

  	
  Number of

  Series B

  Warrant

  Shares

  	
   

  	
  Aggregate

  Purchase Price

  	
   

  	
  Legal

  Representative’s

  Address and Facsimile

  Number

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  The Quercus Trust

  	
   

  	
  2309
  Santiago Drive

  Newport Beach,

  California 92660

  	
   

  	
  $

  	
  20,000,000

  	
   

  	
  40,000,000

  	
   

  	
  $

  	
  20,000,000

  	
   

  	
  David
  Gelbaum

  Trustee

  	
   

  
														

 

 38

EXHIBITS

	
  Exhibit A

  	
   

  	
  Form of Series A Note

  
	
  Exhibit B

  	
   

  	
  Form of Series B Note

  
	
  Exhibit C

  	
   

  	
  Form of Series A Warrant

  
	
  Exhibit D

  	
   

  	
  Form of Series B Warrant

  
	
  Exhibit E

  	
   

  	
  Form of Registration Rights Agreement

  
	
  Exhibit F

  	
   

  	
  Form of Escrow Agreement

  
	
  Exhibit G

  	
   

  	
  Form of Transfer Agent Instructions

  
	
  Exhibit H

  	
   

  	
  Form of Opinion of Company’s Counsel

  
	
  Exhibit I

  	
   

  	
  Form of Secretary’s Certificate

  
	
  Exhibit J

  	
   

  	
  Form of Officer’s Certificate

  
	
  Exhibit K

  	
   

  	
  Form of Lockup Agreement

  

 

DISCLOSURE SCHEDULE 3(h)

Schedule 3(h)

Placement Agent’s Fees

Pursuant to the
engagement agreement entered into between Open Energy Corporation (“Open”) and
Knight Capital Markets, LLC (“Knight”) on March 12, 2007, as subsequently
amended, Open has agreed to pay Knight the following placement and advisory
fees in connection with the total dollar amount of securities sold pursuant to
this Agreement:

Advisory Fees:

·              1.0%
cash advisory fee;

·                                          Warrants
to purchase up to 1.0% of the number of shares of common stock underlying the
Convertible Notes sold in this offering, exercisable at the Conversion Price of
the Convertible Notes.

Placement Fees:

·              6.0%
cash placement fee;

·                                          Warrants
to purchase up to 3.0% of the number of shares of common stock underlying the Convertible
Notes sold in this offering, exercisable at the Conversion Price of the
Convertible Notes.

Expenses:

Open has agreed to pay
for all of Knight’s legal counsel fees and all expenses incurred by Knight in
connection with the offering of its securities pursuant to this Agreement.

 40

DISCLOSURE
SCHEDULE 3(q)(ii)

Equity Capitalization

·                  22,000
warrants to purchase shares of the Company’s common stock at a price of $0.55
per share issued to Everest Asset Management, exercisable for a period of 60
months from the date of issuance.

·                  400,000
warrants to purchase shares of the Company’s common stock at a price of $0.50
per share issued to J. H. Darbie & Co., exercisable for a period of 36
months from the date of issuance.

DISCLOSURE SCHEDULE 4(d)

Use of Proceeds

·                 repayment of John Fife debenture
in the amount of $950,000

·                 repayment of Everest Asset
Management note in the amount of $1,000,000

·                 repayment of loans payable to
former SRS shareholders as follows:

	
  Account Description

  	
   

  	
  Ending Balance

  	
   

  
	
  Due to
  Geocalm/LabX US$-SRS

  	
   

  	
  $

  	
  269,171.21

  	
   

  
	
  Due to
  Geocalm/LabX CDN$-SRS

  	
   

  	
  30,798.40

  	
   

  
	
  Shareholder -
  Robert Kafato-SRS

  	
   

  	
  74,467.23

  	
   

  
	
  Shareholder -
  Norm Dodd-SRS

  	
   

  	
  48,968.01

  	
   

  
	
  Shareholder -
  Bill Chislett-SRS

  	
   

  	
  36,474.09

  	
   

  
	
  Subtotal related parties

  	
   

  	
  459,878.94

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Bank of Montreal
  Loan-SRS U$D, CAD Loan

  	
   

  	
  61,535.43

  	
   

  
	
   

  	
   

  	
  $

  	
  521,414.37

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