Document:

Unassociated Document

Exhibit
    10.1
    

    
 

    

    PRINCETON
      SECURITY TECHNOLOGIES, INC.

    

    2006
      EQUITY INCENTIVE PLAN

    

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

       

    

    TABLE
      OF CONTENTS

    Page
      No.

     

    
      	
              1. 

            	
              PURPOSES 

            	
               1

            
	 	
              (a) 

            	Eligible
              Stock Award Recipients  	
               1

            
	 	
              (b)  

            	Available Stock Awards 	
               1

            
	 	
              (c)  

            	General Purpose 	
               1

            
	 	 	 	 
	
              2. 

            	
              DEFINITIONS 

            	
               1

            
	 	
              (a)  

            	"Affiliate" 	
               1

            
	 	
              (b)  

            	"Board" 	
               1

            
	 	
              (c)  

            	"Cause" 	
               1

            
	 	
              (d)  

            	"Change in Control" 	
              1

            
	 	
              (e)  

            	"Code" 	
               2

            
	 	
              (f)  

            	"Committee" 	
               2

            
	 	
              (g)  

            	"Common Stock" 	
               2

            
	 	
              (h)  

            	"Company" 	
               2

            
	 	
              (i)  

            	"Consultant" 	
               2

            
	 	
              (j)  

            	"Continuous Service" 	
               2

            
	 	(k)  	"Corporate Transaction" 	
               3

            
	 	(l)	[Intentionally Omitted] 	
               3

            
	 	(m)	"Director" 	
               3

            
	 	(n)	"Disability" 	
               3

            
	 	
              (o)

            	
              "Employee" 

            	
               3

            
	 	
              (p)

            	"Exchange
              Act"	
               3

            
	 	
              (q)

            	"Fair
              Market Value"	
               3

            
	 	
              (r)

            	[Intentionally
              Omitted]	
               4

            
	 	
              (s)

            	"Incentive
              Stock Option"	
               4

            
	 	
              (t)

            	"Nonstatutory
              Stock Option"	
               4

            
	 	
              (u)

            	"Option"	
               4

            
	 	
              (v)

            	
              "Option
                Agreement" 

            	
               4

            
	 	
              (w) 

            	"Optionholder"	
               4

            
	 	
              (x)

            	"Participant"	
              4

            
	 	
              (y)

            	"Plan"	
               4

            
	 	
              (a) 

            	"Securities
              Act"	
               4

            
	 	
              (aa) 

            	"Stock
              Award"	
               4

            
	 	
              (bb) 

            	"Stock
              Award Agreement"	
               4

            
	 	
              (cc)

            	[Intentionally
              Omitted]	
              4

            
	 	
              (dd) 

            	
              "Ten
                Percent Shareholder" 

            	
               4

            
	 	 	 	 
	3. 	
              ADMINISTRATION 

            	
               5

            
	 	
              (a) 

            	Administration
              by Board	
               5

            
	 	
              (b) 

            	Powers
              of Board	
               5

            
	 	
              (c)

            	Delegation
              to Committee	
               5

            
	 	
              (d)

            	
              Effect
                of Board's Decision 

            	
              5

            
	 	 	 	 
	
              4. 

            	
              SHARES
                SUBJECT TO THE PLAN

            	
               6

            
	 	
              (a)

            	Share
              Reserve	
               6

            
	 	
              (b)

            	Reversion
              of Shares to the Share Reserve	
               6

            
	 	
              (c) 

            	Source
              of Shares	
               6

            
	 	 	 	 
	
              5. 

            	
              ELIGIBILITY 

            	
               6

            
	 	
              (a) 

            	
              Eligibility
                for Specific Stock Awards 

            	
               6

            
	 	
              (b) 

            	
              Ten
                Percent Shareholders 

            	
               6

            

    

     

    
      
        
        

      

      
        i

        
          

        

      

      
        
        

      

    

     

     

    
      	6. 	
              OPTION
                PROVISIONS

            	
               6

            
	 	
              (a)

            	
              Term 

            	
               6

            
	 	
              (b)

            	
              Exercise
                Price of an Incentive Stock Option 

            	
               6

            
	 	
              (c)

            	
              Exercise
                Price of a Nonstatutory Stock Option 

            	
               7

            
	 	
              (d) 

            	
              Consideration 

            	
               7

            
	 	
              (e)

            	
              Transferability
                of an Incentive Stock Option 

            	
               8

            
	 	
              (f)

            	Transferability
              of a Nonstatutory Stock Option	
               8

            
	 	
              (g)

            	Vesting
              Generally	
               8

            
	 	
              (h)

            	Termination
              of Continuous Service	
               8

            
	 	
              (i) 

            	
              Extension
                of Termination Date 

            	
               8

            
	 	(j) 	
              Disability
                of Optionholder 

            	
              9

            
	 	(k) 	
              Death
                of Optionholder 

            	
               9

            
	 	(l) 	
              Early
                Exercise 

            	
               9

            
	 	 	 	 
	
              7. 

            	PROVISIONS
              OF STOCK AWARDS OTHER THAN OPTIONS	
               9

            
	 	
              (a)

            	
              Stock
                Bonus Awards 

            	
               9

            
	 	
              (b) 

            	
              Restricted
                Stock Purchase Awards 

            	
               10

            
	 	 	 	 
	
              8. 

            	
              COVENANTS
                OF THE COMPANY

            	
               11

            
	 	
              (a)

            	
              Availability
                of Shares 

            	
               11

            
	 	
              (b) 

            	
              Securities
                Law Compliance 

            	
               11

            
	 	 	 	 
	
              9. 

            	
              USE
                OF PROCEEDS FROM STOCK

            	
               11

            
	 	 	 	 
	
              10. 

            	
              MISCELLANEOUS 

            	
               11

            
	 	
              (a) 

            	
              Acceleration
                of Exercisability and Vesting 

            	
               11

            
	 	
              (b)

            	
              Shareholder
                Rights 

            	
               11

            
	 	
              (c) 

            	
              No
                Employment or other Service Rights 

            	
               11

            
	 	
              (d)

            	
              Incentive
                Stock Option $100,000 Limitation 

            	
               12

            
	 	
              (e)

            	
              Investment
                Assurances 

            	
               12

            
	 	
              (f)

            	
              Withholding
                Obligations 

            	
               12

            
	 	
              (g) 

            	
              [Intentionally
                Omitted]  

            	
               13

            
	 	 	 	 
	
              11. 

            	
              ADJUSTMENTS
                UPON CHANGES IN COMMON STOCK

            	
               13

            
	 	
              (a)

            	
              Capitalization
                Adjustments 

            	
               13

            
	 	
              (b)

            	
              Dissolution
                or Liquidation 

            	
               13

            
	 	
              (c)

            	
              Corporate
                Transaction 

            	
               13

            
	 	
              (d) 

            	
              Change
                in Control 

            	
               13

            
	 	 	 	 
	
              12. 

            	
              AMENDMENT
                OF THE PLAN AND STOCK AWARDS

            	
               14

            
	 	
              (a)

            	
              Amendment
                of Plan 

            	
               14

            
	 	
              (b)

            	
              Shareholder
                Approval 

            	
               14

            
	 	
              (c)

            	
              Contemplated
                Amendments 

            	
               14

            
	 	
              (d)

            	
              No
                Impairment of Rights 

            	
               14

            
	 	
              (e)

            	
              Amendment
                of Stock Awards 

            	
               14

            
	 	
               

            	 	 
	
              13. 

            	
              
                TERMINATION
                  OR SUSPENSION OF THE PLAN

              

            	
               14

            
	 	
              (a)

            	
              Plan
                Term 

            	
               14

            
	 	
              (b) 

            	
              No
                Impairment of Rights 

            	
               14

            
	 	 	 	 
	
              14. 

            	
              EFFECTIVE
                DATE OF PLAN

            	
               14

            
	 	 	 	 
	
              15. 

            	
              CHOICE
                OF LAW

            	
               15

            

    

     

    
      
        
        

      

      
        ii

        
          

        

      

      
        
        

      

    

    PRINCETON
      SECURITY TECHNOLOGIES, INC.

    

    2006
      EQUITY INCENTIVE PLAN

     

    1.    PURPOSES.

    

    (a)    Eligible
      Stock Award Recipients.
      The
      persons eligible to receive Stock Awards are the Employees, Directors and
      Consultants of the Company and its Affiliates.

    

    (b)    Available
      Stock Awards.
      The
      purpose of the Plan is to provide a means by which eligible recipients of Stock
      Awards may be given an opportunity to benefit from increases in value of the
      Common Stock through the granting of the following Stock Awards: (i) Incentive
      Stock Options, (ii) Nonstatutory Stock Options, (iii) stock bonuses and (iv)
      rights to acquire restricted stock. 

    

    (c)    General
      Purpose.
      The
      Company, by means of the Plan, seeks to retain the services of the group of
      persons eligible to receive Stock Awards, to secure and retain the services
      of
      new members of this group and to provide incentives for such persons to exert
      maximum efforts for the success of the Company and its Affiliates.

    

    2.    DEFINITIONS.

    

    (a)    "Affiliate"
      means
      any parent corporation or subsidiary corporation of the Company, whether now
      or
      hereafter existing, as those terms are defined in Sections 424(e) and (f),
      respectively, of the Code.

    

    (b)    "Board"
      means
      the Board of Directors of the Company.

    

    (c)    "Cause"
      means
      the occurrence of any one or more of the following: 

    

    (i)    the
      Participant's conviction of any felony or any crime involving moral turpitude
      or
      dishonesty; 

    

    (ii)   the
      Participant's participation in an act of fraud or dishonesty involving the
      Company or its Affiliates which results in material harm to the business of
      the
      Company or its Affiliates; or 

     

    (iii)   the
      Participant's intentional, material violation of any contract between the
      Participant and the Company or its Affiliates or any statutory duty the
      Participant owes to the Company or its Affiliates that the Participant does
      not
      correct within thirty (30) days after written notice thereof has been provided
      to the Participant.

    

    (d)    "Change
      in Control"
      means
      the occurrence of any one or more of the following:

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

       

    

    (i)    a
      Corporate Transaction after which persons who were not shareholders of the
      Company immediately prior to such Corporate Transaction own, directly or
      indirectly, immediately following such Corporate Transaction, fifty percent
      (50%) or more of the outstanding voting power of each of (a) the continuing
      or
      surviving entity and (b) any direct or indirect parent corporation of the
      continuing or surviving entity;

    

    (ii)    an
      acquisition by any person, entity or group within the meaning of Section 13(d)
      or 14(d) of the Exchange Act, or any comparable successor provisions (excluding
      any employee benefit plan, or related trust, sponsored or maintained by the
      Company or an Affiliate) of the beneficial ownership (within the meaning of
      Rule
      13d-3 promulgated under the Exchange Act, or comparable successor rule) of
      securities of the Company representing at least fifty percent (50%) of the
      combined voting power entitled to vote in the election of Directors;
provided
      that
      such acquisition does not occur in connection with, in contemplation of or
      as a
      result of a Corporate Transaction; or 

    

    (iii)   during
      any consecutive two (2) year period the individuals who, as of the start of
      such
      period, are members of the Board (the "Incumbent Board"),
      cease
      for any reason to constitute at least fifty percent (50%) of the Board,
provided
      that
      such change in the Incumbent Board does not occur in connection with, in
      contemplation of or as a result of a Corporate Transaction, and further provided
      that if
      the election, or nomination for election, by the Company's shareholders of
      any
      new Director was approved by a vote of at least fifty percent (50%) of the
      Incumbent Board, such new Director shall be considered as a member of the
      Incumbent Board.

    

    (e)    "Code"
      means
      the Internal Revenue Code of 1986, as amended.

    

    (f)    "Committee"
      means a
      committee of one or more members of the Board appointed by the Board in
      accordance with Subsection 3(c). 

    

    (g)    "Common
      Stock"
      means
      the common stock of the Company.

    

    (h)    "Company"
      means
      Princeton Security Technologies, Inc., a Nevada corporation.

    

    (i)    "Consultant"
      means
      any person, including an advisor, (i) engaged by the Company or an Affiliate
      to
      render consulting or advisory services and who is compensated for such
      services.

    

    (j)    "Continuous
      Service"
      means
      that the Participant's service with the Company or an Affiliate, whether as
      an
      Employee, Director or Consultant, is not interrupted or terminated. The
      Participant's Continuous Service shall not be deemed to have terminated merely
      because of a change in the capacity in which the Participant renders service
      to
      the Company or an Affiliate as an Employee, Consultant or Director or a change
      in the entity for which the Participant renders such service, provided
      that
      there is no interruption or termination of the Participant's Continuous Service.
      For example, a change in status from an Employee of the Company to a Consultant
      of an Affiliate or a Director will not constitute an interruption of Continuous
      Service. The Board or the chief executive officer of the Company, in that
      party's sole discretion, may determine whether Continuous Service shall be
      considered interrupted in the case of any leave of absence approved by that
      party, including sick leave, military leave or any other personal
      leave.

    

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

       

    

    (k)    "Corporate
      Transaction"
      means
      the occurrence of any one or more of the following: 

    

    (i)    a
      sale,
      lease or other disposition of all or substantially all of the securities or
      assets of the Company;

    

    (ii)    a
      merger
      or consolidation following which the Company is not the surviving
      corporation;

    

    (iii)   a
      reverse
      merger following which the Company is the surviving corporation but the shares
      of Common Stock outstanding immediately preceding the merger are converted
      by
      virtue of the merger into other property, whether in the form of securities,
      cash or otherwise; or

    

    (iv)    any
      other
      transaction described as a "corporate transaction" in Treasury Regulations
      Section 1.425-1(a)(1)(ii). 

    

    (l)    
[Intentionally
      Omitted]

    

    (m)    "Director"
      means a
      member of the Board of Directors of the Company.

    

    (n)    "Disability"
      means
      the permanent and total disability of a person within the meaning of Section
      22(e)(3) of the Code.

    

    (o)    "Employee"
      means
      any person employed by the Company or an Affiliate. Mere service as a Director
      or payment of a director's fee by the Company or an Affiliate shall not be
      sufficient to constitute "employment" by the Company or an
      Affiliate.

    

    (p)    "Exchange
      Act"
      means
      the Securities Exchange Act of 1934, as amended.

    

    (q)    "Fair
      Market Value"
      means,
      as of any date, the value of the Common Stock determined as follows:

    

    (i)    If
      the
      Common Stock is listed on any established stock exchange or traded on the Nasdaq
      National Market or the Nasdaq SmallCap Market, the Fair Market Value of a share
      of Common Stock shall be the closing sales price for such stock (or the closing
      bid, if no sales were reported) as quoted on such exchange or market (or the
      exchange or market with the greatest volume of trading in the Common Stock)
      on
      the last market trading day prior to the day of determination, as reported
      in
      The Wall Street Journal or such other source as the Board deems
      reliable.

    

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

       

    

    (ii)    In
      the
      absence of such markets for the Common Stock, the Fair Market Value shall be
      determined in good faith by the Board. 

    

    (r)    [Intentionally
      Omitted] 

    

    (s)    "Incentive
      Stock Option"
      means
      an Option intended to qualify as an incentive stock option within the meaning
      of
      Section 422 of the Code and the regulations promulgated thereunder.

    

    (t)    "Nonstatutory
      Stock Option"
      means
      an Option not intended to qualify as an Incentive Stock Option. 

    

    (u)    "Option"
      means
      an Incentive Stock Option or a Nonstatutory Stock Option granted pursuant to
      the
      Plan.

    

    (v)    "Option
      Agreement"
      means a
      written agreement between the Company and an Optionholder evidencing the terms
      and conditions of an individual Option grant. Each Option Agreement shall be
      subject to the terms and conditions of the Plan.

    

    (w)    "Optionholder"
      means a
      person to whom an Option is granted pursuant to the Plan or, if applicable,
      such
      other person who holds an outstanding Option.

    

    (x)    "Participant"
      means a
      person to whom a Stock Award is granted pursuant to the Plan or, if applicable,
      such other person who holds an outstanding Stock Award. 

    

    (y)    "Plan"
      means
      this Princeton Security Technologies, Inc. 2006 Equity Incentive Plan.

    

    (z)    "Securities
      Act"
      means
      the Securities Act of 1933, as amended.

    

    (aa)         
      "Stock
      Award"
      means
      any right granted under the Plan, including an Option, a stock bonus and a
      right
      to acquire restricted stock. 

    

    (bb)         "Stock
      Award Agreement"
      means a
      written agreement between the Company and a holder of a Stock Award evidencing
      the terms and conditions of an individual Stock Award grant. Each Stock Award
      Agreement shall be subject to the terms and conditions of the Plan.

    

    (cc)   [Intentionally
      Omitted]

    

    (dd)         
      "Ten
      Percent Shareholder"
      means a
      person who owns (or is deemed to own pursuant to Section 424(d) of the Code)
      stock possessing more than ten percent (10%) of the total combined voting power
      of all classes of stock of the Company or of any of its Affiliates.

    

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    3.    ADMINISTRATION.

    

    (a)    Administration
      by Board.
      The
      Board shall administer the Plan unless and until the Board delegates
      administration to a Committee, as provided in Subsection 3(c).

    

    (b)    Powers
      of Board.
      The
      Board shall have the power, subject to, and within the limitations of, the
      express provisions of the Plan:

    

    (i)    To
      determine from time to time which of the persons eligible under the Plan shall
      be granted Stock Awards; when and how each Stock Award shall be granted; what
      type or combination of types of Stock Award shall be granted; the provisions
      of
      each Stock Award granted (which need not be identical), including the time
      or
      times when a person shall be permitted to receive Common Stock pursuant to
      a
      Stock Award; and the number of shares of Common Stock with respect to which
      a
      Stock Award shall be granted to each such person.

    

    (ii)    To
      construe and interpret the Plan and Stock Awards granted under it, and to
      establish, amend and revoke rules and regulations for its administration. The
      Board, in the exercise of this power, may correct any defect, omission or
      inconsistency in the Plan or in any Stock Award Agreement, in a manner and
      to
      the extent it shall deem necessary or expedient to make the Plan fully
      effective.

    

    (iii)   To
      amend
      the Plan or a Stock Award as provided in Section 12.

    

    (iv)   Generally,
      to exercise such powers and to perform such acts as the Board deems necessary
      or
      expedient to promote the best interests of the Company which are not in conflict
      with the provisions of the Plan.

    

    (c)    Delegation
      to Committee.
      The
      Board may delegate administration of the Plan to a Committee or Committees
      of
      one (1) or more members of the Board, and the term "Committee" shall apply
      to
      any person or persons to whom such authority has been delegated. If
      administration is delegated to a Committee, the Committee shall have, in
      connection with the administration of the Plan, the powers theretofore possessed
      by the Board, including the power to delegate to a subcommittee any of the
      administrative powers the Committee is authorized to exercise (and references
      in
      this Plan to the Board shall thereafter be to the Committee or subcommittee),
      subject, however, to such resolutions, not inconsistent with the provisions
      of
      the Plan, as may be adopted from time to time by the Board. The Board may
      abolish the Committee at any time and revest in the Board the administration
      of
      the Plan.

    

    (d)    Effect
      of Board's Decision.
      All
      determinations, interpretations and constructions made by the Board in good
      faith shall not be subject to review by any person and shall be final, binding
      and conclusive on all persons. 

    

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

       

    

    4.    SHARES
      SUBJECT TO THE PLAN.

    

    (a)    Share
      Reserve.
      Subject
      to the provisions of Section 11 relating to adjustments upon changes in Common
      Stock, the Common Stock that may be issued pursuant to Stock Awards shall not
      exceed in the aggregate 16,465,496 shares of Common Stock (the “Reserved
      Shares”).
      

    

    (b)    Reversion
      of Shares to the Share Reserve.
      If any
      Stock Award shall for any reason expire or otherwise terminate, in whole or
      in
      part, without having been exercised in full, the shares of Common Stock not
      acquired under such Stock Award shall revert to and again become available
      for
      issuance under the Plan.

    

    (c)    Source
      of Shares.
      The
      shares of Common Stock subject to the Plan may be unissued shares or reacquired
      shares, bought on the market or otherwise. 

    

    5.    ELIGIBILITY.

    

    (a)    Eligibility
      for Specific Stock Awards.
      Incentive Stock Options may be granted only to Employees. Stock Awards other
      than Incentive Stock Options may be granted to Employees, Directors and
      Consultants.

    

    (b)    Ten
      Percent Shareholders.
      A Ten
      Percent Shareholder shall not be granted an Incentive Stock Option unless the
      exercise price of such Option is at least one hundred ten percent (110%) of
      the
      Fair Market Value of the Common Stock at the date of grant and the Option is
      not
      exercisable after the expiration of five (5) years from the date of grant.
      

    

    6.    OPTION
      PROVISIONS.

    

    Each
      Option shall be in such form and shall contain such terms and conditions as
      the
      Board shall deem appropriate. All Options shall be separately designated
      Incentive Stock Options or Nonstatutory Stock Options at the time of grant,
      and,
      if certificates are issued, a separate certificate or certificates will be
      issued for shares of Common Stock purchased on exercise of each type of Option.
      The provisions of separate Options need not be identical, but each Option shall
      include (through incorporation of provisions hereof by reference in the Option
      or otherwise) the substance of each of the following provisions:

    

    (a)    Term.
      Subject
      to the provisions of Subsection 5(b) regarding Ten Percent Shareholders, no
      Incentive Stock Option shall be exercisable after the expiration of ten (10)
      years from the date it was granted. 

    

    (b)    Exercise
      Price of an Incentive Stock Option.
      Subject
      to the provisions of Subsection 5(b) regarding Ten Percent Shareholders, the
      exercise price of each Incentive Stock Option shall be not less than one hundred
      percent (100%) of the Fair Market Value of the Common Stock subject to the
      Option on the date the Option is granted. Notwithstanding the foregoing, an
      Incentive Stock Option may be granted with an exercise price lower than that
      set
      forth in the preceding sentence if such Option is granted pursuant to an
      assumption or substitution for another option in a manner satisfying the
      provisions of Section 424(a) of the Code. 

    

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

       

      
        (c)    Exercise
          Price of a Nonstatutory Stock Option.
          The
          exercise price of each Nonstatutory Stock Option shall be not less than
          eighty-five percent (85%) of the Fair Market Value of the Common Stock
          subject
          to the Option on the date the Option is granted. Notwithstanding the foregoing,
          a Nonstatutory Stock Option may be granted with an exercise price lower
          than
          that set forth in the preceding sentence if such Option is granted pursuant
          to
          an assumption or substitution for another option in a manner satisfying
          the
          provisions of Section 424(a) of the Code. 

         

      

    

    (d)    Consideration.
      The
      purchase price of Common Stock acquired pursuant to an Option shall be paid,
      to
      the extent permitted by applicable statutes and regulations, either (i) in
      cash
      at the time the Option is exercised or (ii) at the discretion of the Board
      at
      the time of the grant of the Option (or subsequently in the case of a
      Nonstatutory Stock Option) (1) by delivery to the Company of other Common Stock
      or (2) in any other form of legal consideration that may be acceptable to the
      Board. Unless otherwise specifically provided in the Option, (A) the purchase
      price of Common Stock acquired pursuant to an Option that is paid by delivery
      to
      the Company of other Common Stock acquired, directly or indirectly from the
      Company, shall be paid only by shares of the Common Stock of the Company that
      have been held for more than six (6) months (or such longer or shorter period
      of
      time required to avoid a charge to earnings for financial accounting purposes)
      or (B) by "cashless exercise", but only when a registration statement under
      the
      Securities Act providing for the resale of the Common Stock is not then in
      effect. Notwithstanding any provisions herein to the contrary, if (i) the Fair
      Market Value of one share of Common Stock is greater than the exercise price
      (at
      the date of calculation as set forth below) and (ii) a registration statement
      under the Securities Act providing for the resale of the Common Stock is not
      then in effect, in lieu of exercising an Option by payment of cash, the
      Participant may exercise an Option by a cashless exercise and shall receive
      the
      number of shares of Common Stock equal to an amount (as determined below) by
      surrender of the Option at the principal office of the Company in which event
      the Company shall issue to the Participant a number of shares of Common Stock
      computed using the following formula:

    

    X
      = Y -
(A)(Y)

                     
      B

     

    
      
        	Where 	
                X =

              	
                the
                  number of shares of Common Stock to be issued to the
                  Participant. 

              

      

       

    

    
      	 	
              Y
                =

            	
              the
                number of shares of Common Stock purchasable upon exercise of all
                of the
                Option or, if only a portion of the Option is being exercised, the
                portion
                of the Option being exercised. 

            

    

    

    
      	 	
              A
                =

            	
              the
                Exericse Price. 

            

    

     

    
      	 	B = 	the Fair Market Value of one share of Common
              Stock.  

    

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

    (e)    Transferability
      of an Incentive Stock Option.
      An
      Incentive Stock Option shall not be transferable except by will or by the laws
      of descent and distribution and shall be exercisable during the lifetime of
      the
      Optionholder only by the Optionholder. Notwithstanding the foregoing, the
      Optionholder may, by delivering written notice to the Company, in a form
      satisfactory to the Company, designate a third party who, in the event of the
      death of the Optionholder, shall thereafter be entitled to exercise the Option.
      

    

    (f)    Transferability
      of a Nonstatutory Stock Option.
      A
      Nonstatutory Stock Option shall be transferable to the extent provided in the
      Option Agreement. If the Nonstatutory Stock Option does not provide for
      transferability, then the Nonstatutory Stock Option shall not be transferable
      except by will or by the laws of descent and distribution and shall be
      exercisable during the lifetime of the Optionholder only by the Optionholder.
      Notwithstanding the foregoing, the Optionholder may, by delivering written
      notice to the Company, in a form satisfactory to the Company, designate a third
      party who, in the event of the death of the Optionholder, shall thereafter
      be
      entitled to exercise the Option. 

    

    (g)    Vesting
      Generally.
      The
      total number of shares of Common Stock subject to an Option may, but need not,
      vest and therefore become exercisable in periodic installments that may, but
      need not, be equal. The Option may be subject to such other terms and conditions
      on the time or times when it may be exercised (which may be based on performance
      or other criteria) as the Board may deem appropriate. The vesting provisions
      of
      individual Options may vary. The provisions of this Subsection 6(g) are subject
      to any Option provisions governing the minimum number of shares of Common Stock
      as to which an Option may be exercised. 

    

    (h)    Termination
      of Continuous Service.
      In the
      event an Optionholder's Continuous Service terminates (other than upon the
      Optionholder's death or Disability), the Optionholder may exercise his or her
      Option (to the extent that the Optionholder was entitled to exercise such Option
      as of the date of termination) but only within such period of time ending on
      the
      earlier of (i) the date three (3) months following the termination of the
      Optionholder's Continuous Service (or such longer or shorter period specified
      in
      the Option Agreement), or (ii) the expiration of the term of the Option as
      set
      forth in the Option Agreement. If, after termination, the Optionholder does
      not
      exercise his or her Option within the time specified in the Option Agreement,
      the Option shall terminate. 

    

    (i)    Extension
      of Termination Date.
      An
      Optionholder's Option Agreement may also provide that if the exercise of the
      Option following the termination of the Optionholder's Continuous Service (other
      than upon the Optionholder's death or Disability) would be prohibited at any
      time solely because the issuance of shares of Common Stock would violate the
      registration requirements under the Securities Act, then the Option shall
      terminate on the earlier of (i) the expiration of the term of the Option set
      forth in Subsection 6(a) or (ii) the expiration of a period of three (3) months
      after the termination of the Optionholder's Continuous Service during which
      the
      exercise of the Option would not be in violation of such registration
      requirements.

    

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

       

    

    (j)    Disability
      of Optionholder.
      In the
      event that an Optionholder's Continuous Service terminates as a result of the
      Optionholder's Disability, the Optionholder may exercise his or her Option
      (to
      the extent that the Optionholder was entitled to exercise such Option as of
      the
      date of termination), but only within such period of time ending on the earlier
      of (i) the date twelve (12) months following such termination (or such longer
      or
      shorter period specified in the Option Agreement) or (ii) the expiration of
      the
      term of the Option as set forth in the Option Agreement. If, after termination,
      the Optionholder does not exercise his or her Option within the time specified
      herein, the Option shall terminate. 

    

    (k)    Death
      of Optionholder.
      In the
      event (i) an Optionholder's Continuous Service terminates as a result of the
      Optionholder's death or (ii) the Optionholder dies within the period (if any)
      specified in the Option Agreement after the termination of the Optionholder's
      Continuous Service for a reason other than death, then the Option may be
      exercised (to the extent the Optionholder was entitled to exercise such Option
      as of the date of death) by the Optionholder's estate, by a person who acquired
      the right to exercise the Option by bequest or inheritance or by a person
      designated to exercise the Option upon the Optionholder's death pursuant to
      Subsection 6(e) or 6(f), but only within the period ending on the earlier of
      (1)
      the date twelve (12) months following the date of death (or such longer or
      shorter period specified in the Option Agreement) or (2) the expiration of
      the
      term of such Option as set forth in the Option Agreement. If, after death,
      the
      Option is not exercised within the time specified herein, the Option shall
      terminate. 

    

    (l)    Early
      Exercise.
      The
      Option may, but need not, include a provision whereby the Optionholder may
      elect
      at any time before the Optionholder's Continuous Service terminates to exercise
      the Option as to any part or all of the shares of Common Stock subject to the
      Option prior to the full vesting of the Option. Any unvested shares of Common
      Stock so purchased may be subject to a repurchase option in favor of the Company
      or to any other restriction the Board determines to be appropriate.

    

    7.    PROVISIONS
      OF STOCK AWARDS OTHER THAN OPTIONS.

    

    (a)    Stock
      Bonus Awards.
      Each
      stock bonus agreement shall be in such form and shall contain such terms and
      conditions as the Board shall deem appropriate. The terms and conditions of
      stock bonus agreements may change from time to time, and the terms and
      conditions of separate stock bonus agreements need not be identical, but each
      stock bonus agreement shall include (through incorporation of provisions hereof
      by reference in the agreement or otherwise) the substance of each of the
      following provisions:

    

    (i)    Consideration.
      A stock
      bonus may be awarded in consideration for past services actually rendered to
      the
      Company or an Affiliate for its benefit. 

    

    (ii)   Vesting.
      Shares
      of Common Stock awarded under the stock bonus agreement may, but need not,
      be
      subject to a share reacquisition right in favor of the Company in accordance
      with a vesting schedule to be determined by the Board.

    

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

       

    

    (iii)   Termination
      of Participant's Continuous Service.
      In the
      event a Participant's Continuous Service terminates, the Company may reacquire
      any or all of the shares of Common Stock held by the Participant which have
      not
      vested as of the date of termination under the terms of the stock bonus
      agreement. 

    

    (iv)   Transferability.
      Rights
      to acquire shares of Common Stock under the stock bonus agreement shall be
      transferable by the Participant only upon such terms and conditions as are
      set
      forth in the stock bonus agreement, as the Board shall determine in its
      discretion, so long as Common Stock awarded under the stock bonus agreement
      remains subject to the terms of the stock bonus agreement.

    

    (b)    Restricted
      Stock Purchase Awards.
      Each
      restricted stock purchase agreement shall be in such form and shall contain
      such
      terms and conditions as the Board shall deem appropriate. The terms and
      conditions of the restricted stock purchase agreements may change from time
      to
      time, and the terms and conditions of separate restricted stock purchase
      agreements need not be identical, but each restricted stock purchase agreement
      shall include (through incorporation of provisions hereof by reference in the
      agreement or otherwise) the substance of each of the following
      provisions:

    

    (i)    Purchase
      Price.
      The
      purchase price under each restricted stock purchase agreement shall be such
      amount as the Board shall determine and designate in such restricted stock
      purchase agreement. The purchase price shall not be less than eighty-five
      percent (85%) of the Common Stock's Fair Market Value on the date such award
      is
      made or at the time the purchase is consummated.

    

    (ii)   Consideration.
      The
      purchase price of Common Stock acquired pursuant to the restricted stock
      purchase agreement shall be paid either: (i) in cash at the time of purchase;
      (ii) at the discretion of the Board, according to a deferred payment or other
      similar arrangement with the Participant; or (iii) in any other form of legal
      consideration that may be acceptable to the Board in its
      discretion.

    

    (iii)   Vesting.
      Shares
      of Common Stock acquired under the restricted stock purchase agreement may,
      but
      need not, be subject to a share repurchase option in favor of the Company in
      accordance with a vesting schedule to be determined by the Board. 

    

    (iv)   Termination
      of Participant's Continuous Service.
      In the
      event a Participant's Continuous Service terminates, the Company may repurchase
      or otherwise reacquire any or all of the shares of Common Stock held by the
      Participant which have not vested as of the date of termination under the terms
      of the restricted stock purchase agreement.

    

    (v)   Transferability.
      Rights
      to acquire shares of Common Stock under the restricted stock purchase agreement
      shall be transferable by the Participant only upon such terms and conditions
      as
      are set forth in the restricted stock purchase agreement, as the Board shall
      determine in its discretion, so long as Common Stock awarded under the
      restricted stock purchase agreement remains subject to the terms of the
      restricted stock purchase agreement.

    

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

       

    

    8.    COVENANTS
      OF THE COMPANY.

    

    (a)    Availability
      of Shares.
      During
      the terms of the Stock Awards, the Company shall keep available at all times
      the
      number of shares of Common Stock required to satisfy such Stock Awards.

    

    (b)    Securities
      Law Compliance.
      The
      Company shall seek to obtain from each regulatory commission or agency having
      jurisdiction over the Plan such authority as may be required to grant Stock
      Awards and to issue and sell shares of Common Stock upon exercise of the Stock
      Awards; provided,
      however,
      that
      this undertaking shall not require the Company to register under the Securities
      Act or any state securities law the Plan, any Stock Award or any Common Stock
      issued or issuable pursuant to any such Stock Award. If, after reasonable
      efforts, the Company is unable to obtain from any such regulatory commission
      or
      agency the authority which counsel for the Company deems necessary for the
      lawful issuance and sale of Common Stock under the Plan, the Company shall
      be
      relieved from any liability for failure to issue and sell Common Stock upon
      exercise of such Stock Awards unless and until such authority is
      obtained.

    

    9.    USE
      OF
      PROCEEDS FROM STOCK.

    

    Proceeds
      from the sale of Common Stock pursuant to Stock Awards shall constitute general
      funds of the Company.

    

    10.          
      MISCELLANEOUS.

    

    (a)    Acceleration
      of Exercisability and Vesting.
      The
      Board shall have the power to accelerate the time at which a Stock Award may
      first be exercised or the time during which a Stock Award or any part thereof
      will vest in accordance with the Plan, notwithstanding the provisions in the
      Stock Award stating the time at which it may first be exercised or the time
      during which it will vest. 

    

    (b)    Shareholder
      Rights.
      No
      Participant shall be deemed to be the holder of, or to have any of the rights
      of
      a holder with respect to, any shares of Common Stock subject to such Stock
      Award
      unless and until such Participant has satisfied all requirements for exercise
      of
      the Stock Award pursuant to its terms.

    

    (c)    No
      Employment or other Service Rights.
      Nothing
      in the Plan or any instrument executed or Stock Award granted pursuant thereto
      shall confer upon any Participant any right to continue to serve the Company
      or
      an Affiliate in the capacity in effect at the time the Stock Award was granted
      or shall affect the right of the Company or an Affiliate to terminate (i) the
      employment of an Employee with or without notice and with or without cause,
      (ii)
      the service of a Consultant pursuant to the terms of such Consultant's agreement
      with the Company or an Affiliate or (iii) the service of a Director pursuant
      to
      the Bylaws of the Company or an Affiliate, and any applicable provisions of
      the
      corporate law of the state in which the Company or the Affiliate is
      incorporated, as the case may be.

    

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

       

    

    (d)    Incentive
      Stock Option $100,000 Limitation.
      To the
      extent that the aggregate Fair Market Value (determined at the time of grant)
      of
      Common Stock with respect to which Incentive Stock Options are exercisable
      for
      the first time by any Optionholder during any calendar year (under all plans
      of
      the Company and its Affiliates) exceeds one hundred thousand dollars ($100,000),
      the Options or portions thereof which exceed such limit (according to the order
      in which they were granted) shall be treated as Nonstatutory Stock
      Options.

    

    (e)    Investment
      Assurances.
      The
      Company may require a Participant, as a condition of exercising or acquiring
      Common Stock under any Stock Award, (i) to give written assurances satisfactory
      to the Company as to the Participant's knowledge and experience in financial
      and
      business matters and/or to employ a purchaser representative reasonably
      satisfactory to the Company who is knowledgeable and experienced in financial
      and business matters and that he or she is capable of evaluating, alone or
      together with the purchaser representative, the merits and risks of exercising
      the Stock Award; and (ii) to give written assurances satisfactory the Company
      stating that the Participant is acquiring Common Stock subject to the Stock
      Award for the Participant's own account and not with any present intention
      of
      selling or otherwise distributing the Common Stock. The foregoing requirements,
      and any assurances given pursuant to such requirements, shall be inoperative
      if
      (1) the issuance of the shares of Common Stock upon the exercise or acquisition
      of Common Stock under the Stock Award has been registered under a then currently
      effective registration statement under the Securities Act or (2) as to any
      particular requirement, a determination is made by counsel for the Company
      that
      such requirement need not be met in the circumstances under the then applicable
      securities laws. The Company may, upon advice of counsel to the Company, place
      legends on stock certificates issued under the Plan as such counsel deems
      necessary or appropriate in order to comply with applicable securities laws,
      including, but not limited to, legends restricting the transfer of the Common
      Stock.

    

    (f)    Withholding
      Obligations.
      To the
      extent provided by the terms of a Stock Award Agreement, the Participant may
      satisfy any federal, state or local tax withholding obligation relating to
      the
      exercise or acquisition of Common Stock under a Stock Award by any of the
      following means (in addition to the Company's right to withhold from any
      compensation paid to the Participant by the Company) or by a combination of
      such
      means: 

    

    (i)    tendering
      a cash payment; 

    

    (ii)   authorizing
      the Company to withhold shares of Common Stock from the shares of Common Stock
      otherwise issuable to the Participant as a result of the exercise or acquisition
      of Common Stock under the Stock Award, provided,
      however,
      that
      the Company shall not be authorized to withhold shares of Common Stock in excess
      of the minimum statutory rates for federal or state tax purposes, including
      payroll taxes; or 

    

    (iii)   delivering
      to the Company owned and unencumbered shares of Common Stock.

    

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

       

    

    (g)    [Intentionally
      Omitted]

    

    11.          
      ADJUSTMENTS
      UPON CHANGES IN COMMON STOCK.

    

    (a)    Capitalization
      Adjustments.
      If any
      change is made in the Common Stock subject to the Plan, or subject to any Stock
      Award, without the receipt of consideration by the Company (through merger,
      consolidation, reorganization, recapitalization, reincorporation, stock
      dividend, dividend in property other than cash, stock split, liquidating
      dividend, combination of shares, exchange of shares, change in corporate
      structure or other transaction not involving the receipt of consideration by
      the
      Company), the Plan will be appropriately adjusted in the class(es) and maximum
      number of securities subject to the Plan pursuant to Subsection 4(a), and the
      outstanding Stock Awards will be appropriately adjusted in the class(es) and
      number of securities and price per share of Common Stock subject to such
      outstanding Stock Awards. The Board shall make such adjustments, and its
      determination shall be final, binding and conclusive. (The conversion of any
      convertible securities of the Company shall not be treated as a transaction
      "without receipt of consideration" by the Company.)

    

    (b)    Dissolution
      or Liquidation.
      In the
      event of a dissolution or liquidation of the Company, then all outstanding
      Stock
      Awards shall terminate immediately prior to such event.

    

    (c)    Corporate
      Transaction.
      In the
      event of a Corporate Transaction, any surviving corporation or acquiring
      corporation may assume any Stock Awards outstanding under the Plan or may
      substitute similar stock awards (including an award to acquire the same
      consideration paid to the shareholders pursuant to the Corporate Transaction).
      In the event any surviving corporation or acquiring corporation refuses to
      assume such Stock Awards or to substitute similar stock awards for those
      outstanding under the Plan, then with respect to Stock Awards held by
      Participants whose Continuous Service has not terminated as of the effective
      date of the Corporate Transaction, the vesting of such Stock Awards (and, if
      applicable, the time during which such Stock Awards may be exercised) shall
      be
      accelerated in full, and the Stock Awards shall terminate if not exercised
      (if
      applicable) at or prior to such effective date. With respect to any other Stock
      Awards outstanding under the Plan, such Stock Awards shall terminate if not
      exercised (if applicable) prior the effective date of the Corporate Transaction.
      

    

    (d)    Change
      in Control.
      If a
      Change in Control occurs and within thirteen (13) months after the effective
      date of such Change in Control the Continuous Service of a Participant
      terminates due to an involuntary termination (not including death or Disability)
      without Cause, then the vesting and exercisability of all Stock Awards held
      by
      such Participant shall be accelerated in full. 

    

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

       

    

    12.          
      AMENDMENT
      OF THE PLAN AND STOCK AWARDS.

    

    (a)    Amendment
      of Plan.
      The
      Board at any time, and from time to time, may amend the Plan. However, except
      as
      provided in Section 11 relating to adjustments upon changes in Common Stock,
      no
      amendment shall be effective unless approved by the shareholders of the Company
      to the extent shareholder approval is necessary to satisfy the requirements
      of
      Section 422 of the Code. 

    

    (b)    Shareholder
      Approval.
      The
      Board may, in its sole discretion, submit any other amendment to the Plan for
      shareholder approval. 

    

    (c)    Contemplated
      Amendments.
      It is
      expressly contemplated that the Board may amend the Plan in any respect the
      Board deems necessary or advisable to provide eligible Employees with the
      maximum benefits provided or to be provided under the provisions of the Code
      and
      the regulations promulgated thereunder relating to Incentive Stock Options
      and/or to bring the Plan and/or Incentive Stock Options granted under it into
      compliance therewith. 

    

    (d)    No
      Impairment of Rights.
      Rights
      under any Stock Award granted before amendment of the Plan shall not be impaired
      by any amendment of the Plan unless (i) the Company requests the consent of
      the
      Participant and (ii) the Participant consents in writing.

    

    (e)    Amendment
      of Stock Awards.
      The
      Board at any time, and from time to time, may amend the terms of any one or
      more
      Stock Awards; provided,
      however,
      that
      the rights under any Stock Award shall not be impaired by any such amendment
      unless (i) the Company requests the consent of the Participant and (ii) the
      Participant consents in writing. 

    

    13.          
      TERMINATION
      OR SUSPENSION OF THE PLAN.

    

    (a)    Plan
      Term.
      The
      Board may suspend or terminate the Plan at any time. Unless sooner terminated,
      the Plan shall terminate on the day before the tenth (10th) anniversary of
      the
      date the Plan is adopted by the Board or approved by the shareholders of the
      Company, whichever is earlier. No Stock Awards may be granted under the Plan
      while the Plan is suspended or after it is terminated.

    

    (b)    No
      Impairment of Rights.
      Suspension or termination of the Plan shall not impair rights and obligations
      under any Stock Award granted while the Plan is in effect except with the
      written consent of the Participant. 

    

    14.          
      EFFECTIVE
      DATE OF PLAN.

    

    The
      Plan
      shall become effective on September 1, 2006, but no Stock Award shall be
      exercised (or, in the case of a stock bonus, shall be granted) unless and until
      the Plan has been approved by the shareholders of the Company, which approval
      shall be within twelve (12) months after the date the Plan is adopted by the
      Board.

    

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

       

    

    15.          
      CHOICE
      OF LAW.

    

    The
      law
      of the State of Nevada shall govern all questions concerning the construction,
      validity and interpretation of this Plan, without regard to such state's
      conflict of law rules.

     

     

     

     

     

     

    15<PAGE>

EXHIBIT 10.1

                                                                  EXECUTION COPY
                                                                  --------------

                         COMMON STOCK PURCHASE AGREEMENT

         COMMON STOCK PURCHASE AGREEMENT (the "Agreement"), dated as of March
21, 2007, by and between AETHLON MEDICAL, INC., a Nevada corporation (the
"Company"), and FUSION CAPITAL FUND II, LLC, an Illinois limited liability
company (the "Buyer"). Capitalized terms used herein and not otherwise defined
herein are defined in Section 10 hereof.

                                    WHEREAS:

         Subject to the terms and conditions set forth in this Agreement, the
Company wishes to sell to the Buyer, and the Buyer wishes to buy from the
Company, up to Eight Million Four Hundred Thousand Dollars ($8,400,000.00) of
the Company's common stock, par value $0.001 per share (the "Common Stock"). The
shares of Common Stock to be purchased hereunder are referred to herein as the
"Purchase Shares."

         NOW THEREFORE, the Company and the Buyer hereby agree as follows:

         1. PURCHASE OF COMMON STOCK.

         Subject to the terms and conditions set forth in this Agreement, the
Company has the right to sell to the Buyer, and the Buyer has the obligation to
purchase from the Company, Purchase Shares as follows:

         (a) INITIAL PURCHASE; COMMENCEMENT OF BASE AND BLOCK PURCHASES OF
COMMON STOCK. On the Filing Date (as defined in Section 4(a) hereof), the Buyer
shall buy from the Company as of such date Four Hundred Thousand Dollars
($400,000.00) of Purchase Shares (the "Initial Purchase" and such Purchase
Shares are referred to herein as the "Initial Purchase Shares") at the lesser of
(i) the Purchase Price as of the Business Day prior to the Filing Date, or (ii)
$0.30. The Initial Purchase Shares shall be issued in certificated form and
(subject to Section 5 hereof) shall bear only the restrictive legend set forth
in Section 4(e) hereof. Thereafter, the purchase and sale of Purchase Shares
hereunder shall occur from time to time upon written notices by the Company to
the Buyer on the terms and conditions as set forth herein following the
satisfaction of the conditions (the "Commencement") as set forth in Sections 6
and 7 below (the date of satisfaction of such conditions, the "Commencement
Date").

         (b) THE COMPANY'S RIGHT TO REQUIRE PURCHASES. Any time on or after the
Commencement Date, the Company shall have the right but not the obligation to
direct the Buyer by its delivery to the Buyer of Base Purchase Notices from time
to time to buy Purchase Shares (each such purchase a "Base Purchase") in any
amount up to Thirty Two Thousand Dollars ($32,000.00) per Base Purchase Notice
(the "Base Purchase Amount") at the Purchase Price on the Purchase Date. The
Company may deliver multiple Base Purchase Notices to the Buyer so long as at
least two (2) Business Days have passed since the most recent Base Purchase was
completed. Notwithstanding the forgoing, any time on or after the Commencement
Date, the Company shall also have the right but not the obligation by its
delivery to the Buyer of Block Purchase Notices from time to time to direct the
Buyer to buy Purchase Shares (each such purchase a "Block Purchase") in any
amount up to One Million Dollars ($1,000,000.00) per Block Purchase Notice at
the Block Purchase Price on the Purchase Date as provided herein. For a Block
Purchase Notice to be valid the following conditions must be met: (1) the Block
Purchase Amount shall not exceed Fifty Thousand Dollars ($50,000.00) per Block
Purchase Notice, (2) the Company must deliver the Purchase Shares before 11:00

                                       1
<PAGE>

a.m. eastern time on the Purchase Date and (3) the Sale Price of the Common
Stock must not be below $0.30 (subject to equitable adjustment for any
reorganization, recapitalization, non-cash dividend, stock split or other
similar transaction) during the Purchase Date, the date of the delivery of the
Block Purchase Notice and during the Business Day prior to the delivery of the
Block Purchase Notice. The Block Purchase Amount may be increased to up to One
Hundred Thousand Dollars ($100,000.00) per Block Purchase Notice if the Sale
Price of the Common Stock is not below $0.40 (subject to equitable adjustment
for any reorganization, recapitalization, non-cash dividend, stock split or
other similar transaction) during the Purchase Date, the date of the delivery of
the Block Purchase Notice and during the Business Day prior to the delivery of
the Block Purchase Notice. The Block Purchase Amount may be increased to up to
Two Hundred Thousand Dollars ($200,000.00) per Block Purchase Notice if the Sale
Price of the Common Stock is not below $0.55 (subject to equitable adjustment
for any reorganization, recapitalization, non-cash dividend, stock split or
other similar transaction) during the Purchase Date, the date of the delivery of
the Block Purchase Notice and during the Business Day prior to the delivery of
the Block Purchase Notice. The Block Purchase Amount may be increased to up to
Four Hundred Thousand Dollars ($400,000.00) per Block Purchase Notice if the
Sale Price of the Common Stock is not below $0.70 (subject to equitable
adjustment for any reorganization, recapitalization, non-cash dividend, stock
split or other similar transaction) during the Purchase Date, the date of the
delivery of the Block Purchase Notice and during the Business Day prior to the
delivery of the Block Purchase Notice. The Block Purchase Amount may be
increased to up to One Million Dollars ($1,000,000.00) per Block Purchase Notice
if the Sale Price of the Common Stock is not below $1.50 (subject to equitable
adjustment for any reorganization, recapitalization, non-cash dividend, stock
split or other similar transaction) during the Purchase Date, the date of the
delivery of the Block Purchase Notice and during the Business Day prior to the
delivery of the Block Purchase Notice. As used herein, the term "Block Purchase
Price" shall mean the lesser of (i) the lowest Sale Price of the Common Stock on
the Purchase Date or (ii) the lowest Purchase Price during the previous seven
(7) Business Days prior to the date that the valid Block Purchase Notice was
received by the Buyer. However, if at any time during the Purchase Date, the
date of the delivery of the Block Purchase Notice or during the Business Day
prior to the delivery of the Block Purchase Notice, the Sale Price of the Common
Stock is below the applicable Block Purchase threshold price, such Block
Purchase shall be void and the Buyer's obligations to buy Purchase Shares in
respect of that Block Purchase Notice shall be terminated. Thereafter, the
Company shall again have the right to submit a Block Purchase Notice as set
forth herein by delivery of a new Block Purchase Notice only if the Sale Price
of the Common Stock is above the applicable Block Purchase threshold price
during the date of the delivery of the Block Purchase Notice and during the
Business Day prior to the delivery of the Block Purchase Notice. The Company may
deliver multiple Block Purchase Notices to the Buyer so long as at least two (2)
Business Days have passed since the most recent Block Purchase was completed.

         (c) PAYMENT FOR PURCHASE SHARES. The Buyer shall pay to the Company an
amount equal to the Purchase Amount with respect to such Purchase Shares as full
payment for such Purchase Shares via wire transfer of immediately available
funds on the same Business Day that the Buyer receives such Purchase Shares if
they are received by the Buyer before 11:00 a.m. eastern time or if received by
the Buyer after 11:00 a.m. eastern time, the next Business Day. The Company
shall not issue any fraction of a share of Common Stock upon any purchase. If
the issuance would result in the issuance of a fraction of a share of Common
Stock, the Company shall round such fraction of a share of Common Stock up or
down to the nearest whole share. All payments made under this Agreement shall be
made in lawful money of the United States of America or wire transfer of
immediately available funds to such account as the Company may from time to time
designate by written notice in accordance with the provisions of this Agreement.
Whenever any amount expressed to be due by the terms of this Agreement is due on
any day that is not a Business Day, the same shall instead be due on the next
succeeding day that is a Business Day.

                                       2
<PAGE>

         (d) PURCHASE PRICE FLOOR. The Company and the Buyer shall not effect
any sales under this Agreement on any Purchase Date where the Purchase Price for
any purchases of Purchase Shares would be less than the Floor Price. "Floor
Price" means $0.25, which shall be appropriately adjusted for any
reorganization, recapitalization, non-cash dividend, stock split or other
similar transaction.

         (e) RECORDS OF PURCHASES. The Buyer and the Company shall each maintain
records showing the remaining Available Amount at any give time and the dates
and Purchase Amounts for each purchase or shall use such other method,
reasonably satisfactory to the Buyer and the Company.

         (f) TAXES. The Company shall pay any and all transfer, stamp or similar
taxes that may be payable with respect to the issuance and delivery of any
shares of Common Stock to the Buyer made under this Agreement.

         2. BUYER'S REPRESENTATIONS AND WARRANTIES.

         The Buyer represents and warrants to the Company that as of the date
hereof and as of the Commencement Date:

         (a) INVESTMENT PURPOSE. The Buyer is entering into this Agreement and
acquiring the Commitment Shares, (as defined in Section 4(e) hereof) (this
Agreement, the Purchase Shares and the Commitment Shares are collectively
referred to herein as the "Securities"), for its own account for investment only
and not with a view towards, or for resale in connection with, the public sale
or distribution thereof; provided however, by making the representations herein,
the Buyer does not agree to hold any of the Securities for any minimum or other
specific term.

         (b) ACCREDITED INVESTOR STATUS. The Buyer is an "accredited investor"
as that term is defined in Rule 501(a)(3) of Regulation D.

         (c) RELIANCE ON EXEMPTIONS. The 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 the
Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of the Buyer
to acquire the Securities.

         (d) INFORMATION. The Buyer has been furnished with all materials
relating to the business, finances and operations of the Company and materials
relating to the offer and sale of the Securities that have been reasonably
requested by the Buyer, including, without limitation, the SEC Documents (as
defined in Section 3(f) hereof). The Buyer understands that its investment in
the Securities involves a high degree of risk. The Buyer (i) is able to bear the
economic risk of an investment in the Securities including a total loss, (ii)
has such knowledge and experience in financial and business matters that it is
capable of evaluating the merits and risks of the proposed investment in the
Securities and (iii) has had an opportunity to ask questions of and receive
answers from the officers of the Company concerning the financial condition and
business of the Company and others matters related to an investment in the
Securities. Neither such inquiries nor any other due diligence investigations
conducted by the Buyer or its representatives shall modify, amend or affect the
Buyer's right to rely on the Company's representations and warranties contained
in Section 3 below. The 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
<PAGE>

         (e) NO GOVERNMENTAL REVIEW. The 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 SALE. The Buyer understands that except as provided in
the Registration Rights Agreement (as defined in Section 4(a) hereof): (i) the
Securities have not been and are not being registered under the 1933 Act or any
state securities laws, and may not be offered for sale, sold, assigned or
transferred unless (A) subsequently registered thereunder or (B) an exemption
exists permitting such Securities to be sold, assigned or transferred without
such registration; (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 1933 Act) may require compliance
with some other exemption under the 1933 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 1933 Act or any state securities
laws or to comply with the terms and conditions of any exemption thereunder.

         (g) VALIDITY; ENFORCEMENT. This Agreement has been duly and validly
authorized, executed and delivered on behalf of the Buyer and is a valid and
binding agreement of the Buyer enforceable against the Buyer in accordance with
its terms, subject as to enforceability to general principles of equity and to
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and
other similar laws relating to, or affecting generally, the enforcement of
applicable creditors' rights and remedies.

         (h) RESIDENCY. The Buyer is a resident of the State of Illinois.

         (i) NO PRIOR SHORT SELLING. The Buyer represents and warrants to the
Company that at no time prior to the date of this Agreement has any of the
Buyer, its agents, representatives or affiliates engaged in or effected, in any
manner whatsoever, directly or indirectly, any (i) "short sale" (as such term is
defined in Section 242.200 of Regulation SHO of the Securities Exchange Act of
1934, as amended (the "1934 Act")) of the Common Stock or (ii) hedging
transaction, which establishes a net short position with respect to the Common
Stock.

         3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

         The Company represents and warrants to the Buyer that as of the date
hereof and as of the Commencement Date:

         (a) ORGANIZATION AND QUALIFICATION. The Company and its "Subsidiaries"
(which for purposes of this Agreement means any entity in which the Company,
directly or indirectly, owns 50% or more of the voting stock or capital stock or
other similar equity interests) are corporations duly organized and validly
existing in good standing under the laws of the jurisdiction in which they are
incorporated, and have the requisite corporate power and authority 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 corporation 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

                                       4
<PAGE>

necessary, except to the extent that the failure to be so qualified or be in
good standing could not reasonably be expected to have a Material Adverse
Effect. As used in this Agreement, "Material Adverse Effect" means any material
adverse effect on any of: (i) the business, properties, assets, operations,
results of operations or financial condition of the Company and its
Subsidiaries, if any, taken as a whole, or (ii) the authority or ability of the
Company to perform its obligations under the Transaction Documents (as defined
in Section 3(b) hereof). The Company has no Subsidiaries except as set forth on
Schedule 3(a).

         (b) AUTHORIZATION; ENFORCEMENT; VALIDITY. (i) The Company has the
requisite corporate power and authority to enter into and perform its
obligations under this Agreement, the Registration Rights Agreement and each of
the other agreements entered into by the parties on the Commencement Date and
attached hereto as exhibits to this Agreement (collectively, the "Transaction
Documents"), and to issue 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 it of the transactions contemplated hereby and
thereby, including without limitation, the issuance of the Commitment Shares and
the reservation for issuance and the issuance of the Purchase Shares issuable
under this Agreement, have been duly authorized by the Company's Board of
Directors and no further consent or authorization is required by the Company,
its Board of Directors or its shareholders, (iii) this Agreement has been, and
each other Transaction Document shall be on the Commencement Date, duly executed
and delivered by the Company and (iv) this Agreement constitutes, and each other
Transaction Document upon its execution on behalf of the Company, shall
constitute, the valid and binding obligations of the Company enforceable against
the Company in accordance with their terms, except as such enforceability may be
limited by general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally, the enforcement of creditors' rights and remedies. The
Board of Directors of the Company has approved the resolutions (the "Signing
Resolutions") substantially in the form as set forth as EXHIBIT C-1 attached
hereto to authorize this Agreement and the transactions contemplated hereby. The
Signing Resolutions are valid, in full force and effect and have not been
modified or supplemented in any respect other than by the resolutions set forth
in EXHIBIT C-2 attached hereto regarding the registration statement referred to
in Section 4 hereof. The Company has delivered to the Buyer a true and correct
copy of a unanimous written consent adopting the Signing Resolutions executed by
all of the members of the Board of Directors of the Company. No other approvals
or consents of the Company's Board of Directors and/or shareholders is necessary
under applicable laws and the Company's Certificate of Incorporation and/or
Bylaws to authorize the execution and delivery of this Agreement or any of the
transactions contemplated hereby, including, but not limited to, the issuance of
the Commitment Shares and the issuance of the Purchase Shares.

         (c) CAPITALIZATION. As of the date hereof, the authorized capital stock
of the Company consists of (i) 100,000,000 shares of Common Stock, of which as
of the date hereof, 29,423,874 shares are issued and outstanding, none are held
as treasury shares, 500,000 shares are reserved for issuance pursuant to the
Company's stock option plans of which 467,500 shares remain available for future
grants and 20,021,809 shares are issuable and reserved for issuance pursuant to
securities (other than stock options issued pursuant to the Company's stock
option plans) exercisable or exchangeable for, or convertible into, shares of
Common Stock and (ii) no shares of Preferred Stock are issued and outstanding.
All of such outstanding shares have been, or upon issuance will be, validly
issued and are fully paid and nonassessable. Except as disclosed in Schedule
3(c), (i) no shares of the Company's capital stock are 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 debt securities, (iii)
there are no outstanding options, warrants, scrip, rights to subscribe to, calls
or commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company or any of its
Subsidiaries, or contracts, commitments, understandings or arrangements by which

                                       5
<PAGE>

the Company or any of its Subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its Subsidiaries or
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, any
shares of capital stock of the Company or any of its Subsidiaries, (iv) there
are no agreements or arrangements under which the Company or any of its
Subsidiaries is obligated to register the sale of any of their securities under
the 1933 Act (except the Registration Rights Agreement), (v) there are no
outstanding securities or instruments of 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, (vi) there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance of
the Securities as described in this Agreement and (vii) the Company does not
have any stock appreciation rights or "phantom stock" plans or agreements or any
similar plan or agreement. The Company has furnished to the Buyer true and
correct copies of the Company's Certificate of Incorporation, as amended and as
in effect on the date hereof (the "Certificate of Incorporation"), and the
Company's By-laws, as amended and as in effect on the date hereof (the
"By-laws"), and summaries of the terms of all securities convertible into or
exercisable for Common Stock, if any, and copies of any documents containing the
material rights of the holders thereof in respect thereto.

         (d) ISSUANCE OF SECURITIES. The Commitment Shares and the Initial
Purchase Shares have been duly authorized and, upon issuance (and payment
therefor in the case of the Initial Purchase Shares) in accordance with the
terms hereof, the Commitment Shares and Initial Purchase Shares shall be (i)
validly issued, fully paid and non-assessable and (ii) free from all taxes,
liens and charges with respect to the issue thereof. 6,000,000 shares of Common
Stock have been duly authorized and reserved for issuance as Purchase Shares
under this Agreement after the Commencement. Upon issuance and payment therefor
in accordance with the terms and conditions of this Agreement, the Purchase
Shares shall be validly issued, fully paid and nonassessable and free from all
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.

         (e) NO CONFLICTS. Except as disclosed in Schedule 3(e), 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 reservation for issuance and issuance of the
Purchase Shares) will not (i) result in a violation of the Certificate of
Incorporation, any Certificate of Designations, Preferences and Rights of any
outstanding series of preferred stock of the Company or the By-laws or (ii)
conflict with, or constitute a default (or an event which with notice or lapse
of time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument to which the Company or any of its Subsidiaries is a
party, or result in a violation of any law, rule, regulation, order, judgment or
decree (including federal and state securities laws and regulations and the
rules and regulations of the Principal Market applicable to the Company or any
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 conflicts,
defaults, terminations, amendments, accelerations, cancellations and violations
under clause (ii), which could not reasonably be expected to result in a
Material Adverse Effect. Except as disclosed in Schedule 3(e), neither the
Company nor its Subsidiaries is in violation of any term of or in default under
its Certificate of Incorporation, any Certificate of Designation, Preferences
and Rights of any outstanding series of preferred stock of the Company or
By-laws or their organizational charter or by-laws, respectively. Except as
disclosed in Schedule 3(e), neither the Company nor any of its Subsidiaries is
in violation of any term of or is in default under any material contract,
agreement, mortgage, indebtedness, indenture, instrument, judgment, decree or
order or any statute, rule or regulation applicable to the Company or its
Subsidiaries, except for possible conflicts, defaults, terminations or

                                       6
<PAGE>

amendments which could not reasonably be expected to have a Material Adverse
Effect. The business of the Company and its Subsidiaries is not being conducted,
and shall not be conducted, in violation of any law, ordinance, regulation of
any governmental entity, except for possible violations, the sanctions for which
either individually or in the aggregate could not reasonably be expected to have
a Material Adverse Effect. Except as specifically contemplated by this Agreement
and as required under the 1933 Act or applicable state securities laws, the
Company is not required to obtain any consent, authorization or order of, or
make any filing or registration with, any court or governmental agency or any
regulatory or self-regulatory agency in order for it to execute, deliver or
perform any of its obligations under or contemplated by the Transaction
Documents in accordance with the terms hereof or thereof. Except as disclosed in
Schedule 3(e), all consents, authorizations, orders, filings and registrations
which the Company is required to obtain pursuant to the preceding sentence shall
be obtained or effected on or prior to the Commencement Date. Except as listed
in Schedule 3(e), since January 1, 2006, the Company has not received nor
delivered any notices or correspondence from or to the Principal Market. The
Principal Market has not commenced any delisting proceedings against the
Company.

         (f) SEC DOCUMENTS; FINANCIAL STATEMENTS. Except as disclosed in
Schedule 3(f), since January 1, 2006,, 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 1934 Act (all of the
foregoing filed prior to the date hereof and all exhibits included therein and
financial statements and schedules thereto and documents incorporated by
reference therein being hereinafter referred to as the "SEC Documents"). As of
their respective dates (except as they have been correctly amended), the SEC
Documents complied in all material respects with the requirements of the 1934
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 (except as they may have been properly amended), contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. As of
their respective dates (except as they have been properly amended), 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). Except as listed in Schedule 3(f), the Company has received no
notices or correspondence from the SEC since January 1, 2006. The SEC has not
commenced any enforcement proceedings against the Company or any of its
subsidiaries.

         (g) ABSENCE OF CERTAIN CHANGES. Except as disclosed in Schedule 3(g),
since January 1, 2007, there has been no material adverse change in the
business, properties, operations, financial condition or results of operations
of the Company or its Subsidiaries. The Company has not taken any steps, and
does not currently expect to take any steps, to seek protection pursuant to any
Bankruptcy Law nor does the Company or any of its Subsidiaries have any
knowledge or reason to believe that its creditors intend to initiate involuntary
bankruptcy or insolvency proceedings. The Company is financially solvent and is
generally able to pay its debts as they become due.

                                       7
<PAGE>

         (h) ABSENCE OF LITIGATION. There is no action, suit, proceeding,
inquiry or investigation before or by any court, public board, government
agency, self-regulatory organization or body pending or, to the knowledge of the
Company or any of its Subsidiaries, threatened against or affecting the Company,
the Common Stock or any of the Company's Subsidiaries or any of the Company's or
the Company's Subsidiaries' officers or directors in their capacities as such,
which could reasonably be expected to have a Material Adverse Effect. A
description of each action, suit, proceeding, inquiry or investigation before or
by any court, public board, government agency, self-regulatory organization or
body which, as of the date of this Agreement, is pending or threatened in
writing against or affecting the Company, the Common Stock or any of the
Company's Subsidiaries or any of the Company's or the Company's Subsidiaries'
officers or directors in their capacities as such, is set forth in Schedule
3(h).

         (i) ACKNOWLEDGMENT REGARDING BUYER'S STATUS. The Company acknowledges
and agrees that the Buyer is acting solely in the capacity of arm's length
purchaser with respect to the Transaction Documents and the transactions
contemplated hereby and thereby. The Company further acknowledges that the Buyer
is not acting as a financial advisor or fiduciary of the Company (or in any
similar capacity) with respect to the Transaction Documents and the transactions
contemplated hereby and thereby and any advice given by the 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 the Buyer's
purchase of the Securities. The Company further represents to the 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 and
advisors.

         (j) NO GENERAL SOLICITATION. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the 1933 Act) in connection with the offer or sale of the
Securities.

          (k) INTELLECTUAL PROPERTY RIGHTS. The Company and its Subsidiaries own
or possess adequate rights or licenses to use all material trademarks, trade
names, service marks, service mark registrations, service names, patents, patent
rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and rights necessary to conduct their respective
businesses as now conducted. Except as set forth on Schedule 3(k), none of the
Company's material trademarks, trade names, service marks, service mark
registrations, service names, patents, patent rights, copyrights, inventions,
licenses, approvals, government authorizations, trade secrets or other
intellectual property rights have expired or terminated, or, by the terms and
conditions thereof, could expire or terminate within two years from the date of
this Agreement. The Company and its Subsidiaries do not have any knowledge of
any infringement by the Company or its Subsidiaries of any material trademark,
trade name rights, patents, patent rights, copyrights, inventions, licenses,
service names, service marks, service mark registrations, trade secret or other
similar rights of others, or of any such development of similar or identical
trade secrets or technical information by others and, except as set forth on
Schedule 3(k), there is no claim, action or proceeding being made or brought
against, or to the Company's knowledge, being threatened against, the Company or
its Subsidiaries regarding trademark, trade name, patents, patent rights,
invention, copyright, license, service names, service marks, service mark
registrations, trade secret or other infringement, which could reasonably be
expected to have a Material Adverse Effect.

         (l) ENVIRONMENTAL LAWS. The Company and its Subsidiaries (i) are in
compliance with any and all applicable foreign, federal, state and local laws
and regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (ii) have received all permits, licenses or
other approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval, except where, in each of the
three foregoing clauses, the failure to so comply could not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect.

                                       8
<PAGE>

         (m) TITLE. 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 Schedule 3(m) 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.

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

         (o) REGULATORY PERMITS. The Company and its Subsidiaries possess all
material certificates, authorizations and permits issued by the appropriate
federal, state or foreign regulatory authorities necessary to conduct their
respective businesses, and neither the Company nor any such Subsidiary has
received any notice of proceedings relating to the revocation or modification of
any such certificate, authorization or permit.

         (p) TAX STATUS. The Company and each of its Subsidiaries has made or
filed all federal and state income and all other material tax returns, reports
and declarations required by any jurisdiction to which it is subject (unless and
only to the extent that the Company and each of its Subsidiaries has set aside
on its books provisions reasonably adequate for the payment of all unpaid and
unreported taxes) and has paid all taxes and other governmental assessments and
charges that are material in amount, shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith
and has set aside on its books 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.

         (q) TRANSACTIONS WITH AFFILIATES. Except as set forth on Schedule 3(q)
and other than the grant or exercise of stock options disclosed on Schedule
3(c), none of the officers, directors, or employees of the Company is presently
a party to any transaction with the Company or any of its Subsidiaries (other
than for services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
knowledge of the Company, any corporation, partnership, trust or other entity in
which any officer, director, or any such employee has an interest or is an
officer, director, trustee or partner.

                                       9
<PAGE>

         (r) APPLICATION OF TAKEOVER PROTECTIONS. The Company and its board of
directors have taken or will take prior to the Commencement Date all necessary
action, if any, in order to render inapplicable any control share acquisition,
business combination, poison pill (including any distribution under a rights
agreement) or other similar anti-takeover provision under the Certificate of
Incorporation or the laws of the state of its incorporation which is or could
become applicable to the Buyer as a result of the transactions contemplated by
this Agreement, including, without limitation, the Company's issuance of the
Securities and the Buyer's ownership of the Securities.

         (s) 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, used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expenses relating
to political activity; made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds;
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977, as amended; or made any unlawful bribe, rebate, payoff,
influence payment, kickback or other unlawful payment to any foreign or domestic
government official or employee.

         4. COVENANTS.

         (a) FILING OF FORM 8-K AND REGISTRATION STATEMENT. The Company agrees
that it shall, within the time required under the 1934 Act file a Report on Form
8-K disclosing this Agreement and the transaction contemplated hereby. The
Company shall also file within ten (10) Business Days from the date hereof a new
registration statement covering only the sale of the Commitment Shares and
7,333,333 Purchase Shares (which includes the 1,333,333 Initial Purchase Shares)
in accordance with the terms of the Registration Rights Agreement between the
Company and the Buyer, dated as of the date hereof ("Registration Rights
Agreement"). After such registration statement is declared effective by the SEC,
the Company agrees and acknowledges that any sales by the Company to the Buyer
pursuant to this Agreement are sales of the Company's equity securities in a
transaction that is registered under the 1933 Act.

         (b) BLUE SKY. The Company shall take such action, if any, as is
reasonably necessary in order to obtain an exemption for or to qualify (i) the
initial sale of the Commitment Shares and any Purchase Shares to the Buyer under
this Agreement and (ii) any subsequent sale of the Commitment Shares and any
Purchase Shares by the Buyer, in each case, under applicable securities or "Blue
Sky" laws of the states of the United States in such states as is reasonably
requested by the Buyer from time to time, and shall provide evidence of any such
action so taken to the Buyer.

         (c) LISTING. The Company shall promptly secure the listing of all of
the Purchase Shares and Commitment Shares upon each national securities exchange
and automated quotation system, if any, upon which shares of Common Stock are
then listed (subject to official notice of issuance) and shall maintain, so long
as any other shares of Common Stock shall be so listed, such listing of all such
securities from time to time issuable under the terms of the Transaction
Documents. The Company shall maintain the Common Stock's authorization for
quotation on the Principal Market. Neither the Company nor any of its
Subsidiaries shall take any action that would be reasonably expected to result
in the delisting or suspension of the Common Stock on the Principal Market. The
Company shall promptly, and in no event later than the following Business Day,
provide to the Buyer copies of any notices it receives from the Principal Market
regarding the continued eligibility of the Common Stock for listing on such
automated quotation system or securities exchange. The Company shall pay all
fees and expenses in connection with satisfying its obligations under this
Section.

                                       10
<PAGE>

         (d) LIMITATION ON SHORT SALES AND HEDGING TRANSACTIONS. The Buyer
agrees that beginning on the date of this Agreement and ending on the date of
termination of this Agreement as provided in Section 11(k), the Buyer and its
agents, representatives and affiliates shall not in any manner whatsoever enter
into or effect, directly or indirectly, any (i) "short sale" (as such term is
defined in Section 242.200 of Regulation SHO of the 1934 Act) of the Common
Stock or (ii) hedging transaction, which establishes a net short position with
respect to the Common Stock.

         (e) ISSUANCE OF COMMITMENT SHARES; LIMITATION ON SALES OF COMMITMENT
SHARES. Immediately upon the execution of this Agreement, the Company shall
issue to the Buyer as consideration for the Buyer entering into this Agreement
1,050,000 shares of Common Stock (the "Commitment Shares"). The Commitment
Shares shall be issued in certificated form and (subject to Section 5 hereof)
shall bear the following restrictive legend and no other restrictive legend:

         THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
         UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
         SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND
         MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE
         ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER
         THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
         LAWS, UNLESS SOLD PURSUANT TO: (1) RULE 144 UNDER THE SECURITIES ACT OF
         1933, AS AMENDED, OR (2) AN OPINION OF HOLDER'S COUNSEL, IN A CUSTOMARY
         FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE
         STATE SECURITIES LAWS.

         The Buyer agrees that the Buyer shall not transfer or sell the
Commitment Shares until the earlier of 500 Business Days (25 Monthly Periods)
from the date hereof or the date on which this Agreement has been terminated,
provided, however, that such restrictions shall not apply: (i) in connection
with any transfers to or among affiliates (as defined in the 1934 Act), (ii) in
connection with any pledge in connection with a bona fide loan or margin
account, (iii) in the event that the Commencement does not occur on or before
July 1, 2007, due to the failure of the Company to satisfy the conditions set
forth in Section 7 or (iv) if an Event of Default has occurred, or any event
which, after notice and/or lapse of time, would become an Event of Default,
including any failure by the Company to timely issue Purchase Shares under this
Agreement. Notwithstanding the forgoing, the Buyer may transfer Commitment
Shares to a third party in order to settle a sale made by the Buyer where the
Buyer reasonably expects the Company to deliver Purchase Shares to the Buyer
under this Agreement so long as the Buyer maintains ownership of the same
overall number of shares of Common Stock by "replacing" the Commitment Shares so
transferred with Purchase Shares when the Purchase Shares are actually issued by
the Company to the Buyer.

         (g) DUE DILIGENCE. The Buyer shall have the right, from time to time as
the Buyer may reasonably deem appropriate, to perform reasonable due diligence
on the Company during normal business hours. The Company and its officers and
employees shall provide information and reasonably cooperate with the Buyer in
connection with any reasonable request by the Buyer related to the Buyer's due
diligence of the Company, including, but not limited to, any such request made
by the Buyer in connection with (i) the filing of the registration statement
described in Section 4(a) hereof and (ii) the Commencement. Each party hereto
agrees not to disclose any Confidential Information of the other party to any
third party and shall not use the Confidential Information for any purpose other
than in connection with, or in furtherance of, the transactions contemplated
hereby. Each party hereto acknowledges that the Confidential Information shall
remain the property of the disclosing party and agrees that it shall take all
reasonable measures to protect the secrecy of any Confidential Information
disclosed by the other party.

                                       11
<PAGE>

         5. TRANSFER AGENT INSTRUCTIONS.

         Immediately upon the execution of this Agreement, the Company shall
deliver to the Transfer Agent a letter in the form as set forth as EXHIBIT E
attached hereto with respect to the issuance of the Commitment Shares. On the
Commencement Date, the Company shall cause any restrictive legend on the
Commitment Shares and the Initial Purchase Shares to be removed and all of the
remaining Purchase Shares to be issued under this Agreement shall be issued
without any restrictive legend unless the Buyer expressly consents otherwise.
The Company shall issue irrevocable instructions to the Transfer Agent, and any
subsequent transfer agent, to issue Purchase Shares in the name of the Buyer for
the Purchase Shares (the "Irrevocable Transfer Agent Instructions"). The Company
warrants to the Buyer that no instruction other than the Irrevocable Transfer
Agent Instructions expressly referred to in this Agreement, will be given by the
Company to the Transfer Agent with respect to the Purchase Shares and that the
Commitment Shares and the Purchase 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 Registration Rights Agreement subject to the provisions of
Section 4(e) in the case of the Commitment Shares.

         6. CONDITIONS TO THE COMPANY'S RIGHT TO COMMENCE SALES OF SHARES OF
            COMMON STOCK UNDER THIS AGREEMENT.

         The right of the Company hereunder to commence sales of the Purchase
Shares is subject to the satisfaction of each of the following conditions on or
before the Commencement Date (the date that the Company may begin sales):

         (a) The Buyer shall have executed each of the Transaction Documents and
delivered the same to the Company;

         (b) A registration statement covering the sale of all of the Commitment
Shares and Purchase Shares shall have been declared effective under the 1933 Act
by the SEC and no stop order with respect to the registration statement shall be
pending or threatened by the SEC.

         7. CONDITIONS TO THE BUYER'S OBLIGATION TO MAKE PURCHASES OF SHARES OF
            COMMON STOCK.

         The obligation of the Buyer to buy Purchase Shares under this Agreement
is subject to the satisfaction of each of the following conditions on or before
the Commencement Date (the date that the Company may begin sales) and once such
conditions have been initially satisfied, there shall not be any ongoing
obligation to satisfy such conditions after the Commencement has occurred:

         (a) The Company shall have executed each of the Transaction Documents
and delivered the same to the Buyer;

                                       12
<PAGE>

         (b) The Company shall have issued to the Buyer the Commitment Shares
and the Initial Purchase Shares and shall have removed the restrictive transfer
legend from the certificate representing the Commitment Shares and the Initial
Purchase Shares;

         (c) The Common Stock shall be authorized for quotation on the Principal
Market, trading in the Common Stock shall not have been within the last 365 days
suspended by the SEC or the Principal Market and the Purchase Shares and the
Commitment Shares shall be approved for listing upon the Principal Market;

         (d) The Buyer shall have received the opinions of the Company's legal
counsel dated as of the Commencement Date substantially in the form of EXHIBIT A
attached hereto;

         (e) The representations and warranties of the Company shall be true and
correct in all material respects (except to the extent that any of such
representations and warranties is already qualified as to materiality in Section
3 above, in which case, such representations and warranties shall be true and
correct without further qualification) as of the date when made and as of the
Commencement Date as though made at that time (except for representations and
warranties that speak as of a specific date) and the Company shall have
performed, satisfied and complied 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 Commencement Date. The Buyer shall have
received a certificate, executed by the CEO, President or CFO of the Company,
dated as of the Commencement Date, to the foregoing effect in the form attached
hereto as EXHIBIT B;

         (f) The Board of Directors of the Company shall have adopted
resolutions in the form attached hereto as EXHIBIT C which shall be in full
force and effect without any amendment or supplement thereto as of the
Commencement Date;

         (g) As of the Commencement Date, the Company shall have reserved out of
its authorized and unissued Common Stock, solely for the purpose of effecting
purchases of Purchase Shares hereunder, 7,333,333 shares of Common Stock
including the Initial Purchase Shares;

         (h) The Irrevocable Transfer Agent Instructions, in form acceptable to
the Buyer shall have been delivered to and acknowledged in writing by the
Company and the Company's Transfer Agent;

         (i) The Company shall have delivered to the Buyer a certificate
evidencing the incorporation and good standing of the Company in the State of
Nevada issued by the Secretary of State of the State of Nevada as of a date
within ten (10) Business Days of the Commencement Date;

         (j) The Company shall have delivered to the Buyer a certified copy of
the Certificate of Incorporation as certified by the Secretary of State of the
State of Nevada within ten (10) Business Days of the Commencement Date;

         (k) The Company shall have delivered to the Buyer a secretary's
certificate executed by the Secretary of the Company, dated as of the
Commencement Date, in the form attached hereto as EXHIBIT D;

                                       13
<PAGE>

         (l) A registration statement covering the sale of all of the Commitment
Shares and Purchase Shares shall have been declared effective under the 1933 Act
by the SEC and no stop order with respect to the registration statement shall be
pending or threatened by the SEC. The Company shall have prepared and delivered
to the Buyer a final and complete form of prospectus, dated and current as of
the Commencement Date, to be used by the Buyer in connection with any sales of
any Commitment Shares or any Purchase Shares, and to be filed by the Company one
Business Day after the Commencement Date. The Company shall have made all
filings under all applicable federal and state securities laws necessary to
consummate the issuance of the Commitment Shares and the Purchase Shares
pursuant to this Agreement in compliance with such laws;

         (m) No Event of Default has occurred, or any event which, after notice
and/or lapse of time, would become an Event of Default has occurred;

         (n) On or prior to the Commencement Date, the Company shall take all
necessary action, if any, and such actions as reasonably requested by the Buyer,
in order to render inapplicable any control share acquisition, business
combination, shareholder rights plan or poison pill (including any distribution
under a rights agreement) or other similar anti-takeover provision under the
Certificate of Incorporation or the laws of the state of its incorporation which
is or could become applicable to the Buyer as a result of the transactions
contemplated by this Agreement, including, without limitation, the Company's
issuance of the Securities and the Buyer's ownership of the Securities; and

         (o) The Company shall have provided the Buyer with the information
requested by the Buyer in connection with its due diligence requests made prior
to, or in connection with, the Commencement, in accordance with the terms of
Section 4(g) hereof.

         8. INDEMNIFICATION.

         In consideration of the Buyer's execution and delivery of the
Transaction Documents and acquiring the Securities hereunder and in addition to
all of the Company's other obligations under the Transaction Documents, the
Company shall defend, protect, indemnify and hold harmless the Buyer and all of
its affiliates, shareholders, officers, directors, employees and direct or
indirect investors and any of the foregoing person's agents or other
representatives (including, without limitation, those retained in connection
with the transactions contemplated by this Agreement) (collectively, the
"Indemnitees") from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses in
connection therewith (irrespective of whether any such 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 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 Indemnitee
and arising out of or resulting from the execution, delivery, performance or
enforcement of the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby, other than with respect to Indemnified
Liabilities which directly and primarily result from the gross negligence or
willful misconduct of the 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 which is permissible under applicable law.

                                       14
<PAGE>

         9. EVENTS OF DEFAULT.

         An "Event of Default" shall be deemed to have occurred at any time as
any of the following events occurs:

         (a) while any registration statement is required to be maintained
effective pursuant to the terms of the Registration Rights Agreement, the
effectiveness of such registration statement lapses for any reason (including,
without limitation, the issuance of a stop order) or is unavailable to the Buyer
for sale of all of the Registrable Securities (as defined in the Registration
Rights Agreement) in accordance with the terms of the Registration Rights
Agreement, and such lapse or unavailability continues for a period of five (5)
consecutive Business Days or for more than an aggregate of twenty (20) Business
Days in any 365-day period;

         (b) the suspension from trading or failure of the Common Stock to be
listed on the Principal Market for a period of three (3) consecutive Business
Days;

         (c) the delisting of the Company's Common Stock from the Principal
Market, provided, however, that the Common Stock is not immediately thereafter
trading on the New York Stock Exchange, the Nasdaq Global Market, the Nasdaq
Capital Market, or the American Stock Exchange;

         (d) the failure for any reason by the Transfer Agent to issue Purchase
Shares to the Buyer within five (5) Business Days after the applicable Purchase
Date which the Buyer is entitled to receive;

         (e) the Company breaches any representation, warranty, covenant or
other term or condition under any Transaction Document if such breach could have
a Material Adverse Effect and except, in the case of a breach of a covenant
which is reasonably curable, only if such breach continues for a period of at
least five (5) Business Days;

         (f) if any Person commences a proceeding against the Company pursuant
to or within the meaning of any Bankruptcy Law ;

         (g) if the Company pursuant to or within the meaning of any Bankruptcy
Law; (A) commences a voluntary case, (B) consents to the entry of an order for
relief against it in an involuntary case, (C) consents to the appointment of a
Custodian of it or for all or substantially all of its property, (D) makes a
general assignment for the benefit of its creditors, (E) becomes insolvent, or
(F) is generally unable to pay its debts as the same become due; or

         (h) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that (A) is for relief against the Company in an involuntary
case, (B) appoints a Custodian of the Company or for all or substantially all of
its property, or (C) orders the liquidation of the Company or any Subsidiary.

In addition to any other rights and remedies under applicable law and this
Agreement, including the Buyer termination rights under Section 11(k) hereof, so
long as an Event of Default has occurred and is continuing, or if any event
which, after notice and/or lapse of time, would become an Event of Default, has
occurred and is continuing, or so long as the Purchase Price is below the
Purchase Price Floor, the Buyer shall not be obligated to purchase any shares of
Common Stock under this Agreement. If pursuant to or within the meaning of any
Bankruptcy Law, the Company commences a voluntary case or any Person commences a

                                       15
<PAGE>

proceeding against the Company, a Custodian is appointed for the Company or for
all or substantially all of its property, or the Company makes a general
assignment for the benefit of its creditors, (any of which would be an Event of
Default as described in Sections 9(f), 9(g) and 9(h) hereof) this Agreement
shall automatically terminate without any liability or payment to the Company
without further action or notice by any Person. No such termination of this
Agreement under Section 11(k)(i) shall affect the Company's or the Buyer's
obligations under this Agreement with respect to pending purchases and the
Company and the Buyer shall complete their respective obligations with respect
to any pending purchases under this Agreement.

         10. CERTAIN DEFINED TERMS.

         For purposes of this Agreement, the following terms shall have the
following meanings:

         (a) "1933 Act" means the Securities Act of 1933, as amended.

         (b) "Available Amount" means initially Eight Million Four Hundred
Thousand Dollars ($8,400,000.00) in the aggregate which amount shall be reduced
by the Purchase Amount each time the Buyer purchases shares of Common Stock
pursuant to Section 1 hereof.

         (c) "Bankruptcy Law" means Title 11, U.S. Code, or any similar federal
or state law for the relief of debtors.

         (d) "Base Purchase Notice" shall mean an irrevocable written notice
from the Company to the Buyer directing the Buyer to buy up to the Base Purchase
Amount in Purchase Shares as specified by the Company therein at the applicable
Purchase Price on the Purchase Date.

         (e) "Block Purchase Amount" shall mean such Block Purchase Amount as
specified by the Company in a Block Purchase Notice subject to Section 1(b)
hereof.

         (f) "Block Purchase Notice" shall mean an irrevocable written notice
from the Company to the Buyer directing the Buyer to buy the Block Purchase
Amount in Purchase Shares as specified by the Company therein at the Block
Purchase Price as of the Purchase Date subject to Section 1 hereof.

         (d) "Business Day" means any day on which the Principal Market is open
for trading including any day on which the Principal Market is open for trading
for a period of time less than the customary time.

         (e) "Closing Sale Price" means, for any security as of any date, the
last closing trade price for such security on the Principal Market as reported
by the Principal Market, or, if the Principal Market is not the principal
securities exchange or trading market for such security, the last closing trade
price of such security on the principal securities exchange or trading market
where such security is listed or traded as reported by the Principal Market.

         (f) "Confidential Information" means any information disclosed by
either party to the other party, either directly or indirectly, in writing,
orally or by inspection of tangible objects (including, without limitation,
documents, prototypes, samples, plant and equipment), which is designated as
"Confidential," "Proprietary" or some similar designation. Information
communicated orally shall be considered Confidential Information if such
information is confirmed in writing as being Confidential Information within ten
(10) business days after the initial disclosure. Confidential Information may
also include information disclosed to a disclosing party by third parties.
Confidential Information shall not, however, include any information which (i)
was publicly known and made generally available in the public domain prior to

                                       16
<PAGE>

the time of disclosure by the disclosing party; (ii) becomes publicly known and
made generally available after disclosure by the disclosing party to the
receiving party through no action or inaction of the receiving party; (iii) is
already in the possession of the receiving party at the time of disclosure by
the disclosing party as shown by the receiving party's files and records
immediately prior to the time of disclosure; (iv) is obtained by the receiving
party from a third party without a breach of such third party's obligations of
confidentiality; (v) is independently developed by the receiving party without
use of or reference to the disclosing party's Confidential Information, as shown
by documents and other competent evidence in the receiving party's possession;
or (vi) is required by law to be disclosed by the receiving party, provided that
the receiving party gives the disclosing party prompt written notice of such
requirement prior to such disclosure and assistance in obtaining an order
protecting the information from public disclosure.

         (g) "Custodian" means any receiver, trustee, assignee, liquidator or
similar official under any Bankruptcy Law.

         (h) "Maturity Date" means the date that is 500 Business Days (25
Monthly Periods) from the Commencement Date.

         (i) "Monthly Period" means each successive 20 Business Day period
commencing with the Commencement Date.

         (j) "Person" means an individual or entity including any limited
liability company, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization and a government or any department or agency
thereof.

         (k) "Principal Market" means the Nasdaq OTC Bulletin Board; provided
however, that in the event the Company's Common Stock is ever listed or traded
on the Nasdaq Global Market, the Nasdaq Capital Market, the New York Stock
Exchange or the American Stock Exchange, than the "Principal Market" shall mean
such other market or exchange on which the Company's Common Stock is then listed
or traded.

         (l) "Purchase Amount" means, with respect to any particular purchase
made hereunder, the portion of the Available Amount to be purchased by the Buyer
pursuant to Section 1 hereof as set forth in a valid Base Purchase Notice or a
valid Block Purchase Notice which the Company delivers to the Buyer.

         (m) "Purchase Date" means with respect to any particular purchase made
hereunder, the Business Day after receipt by the Buyer of a valid Base Purchase
Notice or a valid Block Purchase Notice that the Buyer is to buy Purchase Shares
pursuant to Section 1 hereof.

         (n) "Purchase Price" means the lower of the (A) the lowest Sale Price
of the Common Stock on the Purchase Date and (B) the arithmetic average of the
three (3) lowest Closing Sale Prices for the Common Stock during the twelve (12)
consecutive Business Days ending on the Business Day immediately preceding such
Purchase Date (to be appropriately adjusted for any reorganization,
recapitalization, non-cash dividend, stock split or other similar transaction).

         (o) "Sale Price" means, any trade price for the shares of Common Stock
on the Principal Market as reported by the Principal Market.

         (q) "SEC" means the United States Securities and Exchange Commission.

                                       17
<PAGE>

         (r) "Transfer Agent" means the transfer agent of the Company as set
forth in Section 11(f) hereof or such other person who is then serving as the
transfer agent for the Company in respect of the Common Stock.

         11. MISCELLANEOUS.

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

         (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. With the exception of the Mutual Nondisclosure
Agreement between the parties dated as of March 13, 2007, this Agreement
supersedes all other prior oral or written agreements between the Buyer, 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 contain the entire understanding of the
parties with respect to the matters covered herein and therein and, except as
specifically set forth herein or therein, neither the Company nor the Buyer
makes any representation, warranty, covenant or undertaking with respect to such
matters. The Company acknowledges and agrees that is has not relied on, in any
manner whatsoever, any representations or statements, written or oral, other
than as expressly set forth in this Agreement.

                                       18
<PAGE>

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

         If to the Company:
                  Aethlon Medical, Inc.
                  3030 Bunker Hill Street
                  Suite 4000
                  San Diego, CA 92109
                  Telephone:        858-459-7800
                  Facsimile:        858-332-1739
                  Attention:        Chief Executive Officer

         With a copy to:
                  Richardson & Patel, LLP
                  10900 Wilshire Blvd., Suite 500
                  Los Angeles, CA 90404
                  Telephone:        310-208-1182
                  Facsimile:        310-208-1154
                  Attention:        Nimish Patel, Esq.

         If to the Buyer:
                  Fusion Capital Fund II, LLC
                  222 Merchandise Mart Plaza, Suite 9-112
                  Chicago, IL 60654
                  Telephone:        312-644-6644
                  Facsimile:        312-644-6244
                  Attention:        Steven G. Martin

         If to the Transfer Agent:
                  Computershare Trust Company
                  350 Indiana Street, #800
                  Golden, CO 80401
                  Telephone:        (303) 262-0600 ext. 4761
                  Facsimile:        (303) 262-0700
                  Attention:        Sue Barron

or at such other address and/or facsimile number and/or to the attention of such
other person as the recipient party has specified by written notice given to
each other party three (3) Business Days prior to the effectiveness of such
change. Written confirmation of receipt (A) given by the recipient of such
notice, consent or other communication, (B) mechanically or electronically
generated by the sender's facsimile machine containing the time, date, and
recipient facsimile number or (C) provided by a nationally recognized overnight
delivery service, shall be rebuttable evidence of personal service, receipt by
facsimile or receipt from a nationally recognized overnight delivery service in
accordance with clause (i), (ii) or (iii) above, respectively.

                                       19
<PAGE>

         (g) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and assigns.
The Company shall not assign this Agreement or any rights or obligations
hereunder without the prior written consent of the Buyer, including by merger or
consolidation. The Buyer may not assign its rights or obligations under this
Agreement.

         (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) PUBLICITY. The Buyer shall have the right to approve before
issuance any press release, SEC filing or any other public disclosure made by or
on behalf of the Company whatsoever with respect to, in any manner, the Buyer,
its purchases hereunder or any aspect of this Agreement or the transactions
contemplated hereby; provided, however, that the Company shall be entitled,
without the prior approval of the Buyer, to make any press release or other
public disclosure (including any filings with the SEC) with respect to such
transactions as is required by applicable law and regulations so long as the
Company and its counsel consult with the Buyer in connection with any such press
release or other public disclosure at least two (2) Business Days prior to its
release. The Buyer must be provided with a copy thereof at least two (2)
Business Days prior to any release or use by the Company thereof. The Company
agrees and acknowledges that its failure to fully comply with this provision
constitutes a material adverse effect on its ability to perform its obligations
under this Agreement.

         (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
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.

         (k) TERMINATION. This Agreement may be terminated only as follows:

                  (i) By the Buyer any time an Event of Default exists without
         any liability or payment to the Company. However, if pursuant to or
         within the meaning of any Bankruptcy Law, the Company commences a
         voluntary case or any Person commences a proceeding against the
         Company, a Custodian is appointed for the Company or for all or
         substantially all of its property, or the Company makes a general
         assignment for the benefit of its creditors, (any of which would be an
         Event of Default as described in Sections 9(f), 9(g) and 9(h) hereof)
         this Agreement shall automatically terminate without any liability or
         payment to the Company without further action or notice by any Person.
         No such termination of this Agreement under this Section 11(k)(i) shall
         affect the Company's or the Buyer's obligations under this Agreement
         with respect to pending purchases and the Company and the Buyer shall
         complete their respective obligations with respect to any pending
         purchases under this Agreement.

                  (ii) In the event that the Commencement shall not have
         occurred, the Company shall have the option to terminate this Agreement
         for any reason or for no reason without liability of any party to any
         other party.

                                       20
<PAGE>

                  (iii) In the event that the Commencement shall not have
         occurred on or before July 1, 2007, due to the failure to satisfy the
         conditions set forth in Sections 6 and 7 above with respect to the
         Commencement, the nonbreaching party shall have the option to terminate
         this Agreement at the close of business on such date or thereafter
         without liability of any party to any other party.

                  (iv) If by the Maturity Date for any reason or for no reason
         the full Available Amount under this Agreement has not been purchased
         as provided for in Section 1 of this Agreement, by the Buyer without
         any liability or payment to the Company.

                  (v) At any time after the Commencement Date, the Company shall
         have the option to terminate this Agreement for any reason or for no
         reason by delivering notice (a "Company Termination Notice") to the
         Buyer electing to terminate this Agreement without any liability or
         payment to the Buyer. The Company Termination Notice shall not be
         effective until one (1) Business Day after it has been received by the
         Buyer.

                  (vi) This Agreement shall automatically terminate on the date
         that the Company sells and the Buyer purchases the full Available
         Amount as provided herein, without any action or notice on the part of
         any party.

Except as set forth in Sections 11(k)(i) (in respect of an Event of Default
under Sections 9(f), 9(g) and 9(h)) and 11(k)(vi), any termination of this
Agreement pursuant to this Section 11(k) shall be effected by written notice
from the Company to the Buyer, or the Buyer to the Company, as the case may be,
setting forth the basis for the termination hereof. The representations and
warranties of the Company and the Buyer contained in Sections 2, 3 and 5 hereof,
the indemnification provisions set forth in Section 8 hereof and the agreements
and covenants set forth in Section 11, shall survive the Commencement and any
termination of this Agreement. No termination of this Agreement shall affect the
Company's or the Buyer's rights or obligations (i) under the Registration Rights
Agreement which shall survive any such termination or (ii) under this Agreement
with respect to pending purchases and the Company and the Buyer shall complete
their respective obligations with respect to any pending purchases under this
Agreement.

         (l) NO FINANCIAL ADVISOR, PLACEMENT AGENT, BROKER OR FINDER. The
Company represents and warrants to the Buyer that it has not engaged any
financial advisor, placement agent, broker or finder in connection with the
transactions contemplated hereby. The Buyer represents and warrants to the
Company that it has not engaged any financial advisor, placement agent, broker
or finder in connection with the transactions contemplated hereby. The Company
shall be responsible for the payment of any fees or commissions, if any, of any
financial advisor, placement agent, broker or finder relating to or arising out
of the transactions contemplated hereby. The Company shall pay, and hold the
Buyer harmless against, any liability, loss or expense (including, without
limitation, attorneys' fees and out of pocket expenses) arising in connection
with any such claim.

         (m) 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.

         (n) REMEDIES, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The
Buyer's remedies provided in this Agreement shall be cumulative and in addition
to all other remedies available to the Buyer under this Agreement, at law or in
equity (including a decree of specific performance and/or other injunctive
relief), no remedy of the Buyer contained herein shall be deemed a waiver of
compliance with the provisions giving rise to such remedy and nothing herein
shall limit the Buyer's right to pursue actual damages for any failure by the

                                       21
<PAGE>

Company to comply with the terms of this Agreement. The Company acknowledges
that a breach by it of its obligations hereunder will cause irreparable harm to
the Buyer and that the remedy at law for any such breach may be inadequate. The
Company therefore agrees that, in the event of any such breach or threatened
breach, the Buyer shall be entitled, in addition to all other available
remedies, to an injunction restraining any breach, without the necessity of
showing economic loss and without any bond or other security being required.

         (0) ENFORCEMENT COSTS. If: (i) this Agreement is placed by the Buyer in
the hands of an attorney for enforcement or is enforced by the Buyer through any
legal proceeding; or (ii) an attorney is retained to represent the Buyer in any
bankruptcy, reorganization, receivership or other proceedings affecting
creditors' rights and involving a claim under this Agreement; or (iii) an
attorney is retained to represent the Buyer in any other proceedings whatsoever
in connection with this Agreement, then the Company shall pay to the Buyer, as
incurred by the Buyer, all reasonable costs and expenses including attorneys'
fees incurred in connection therewith, in addition to all other amounts due
hereunder.

         (p) FAILURE OR INDULGENCE NOT WAIVER. No failure or delay in the
exercise of any power, right or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such power, right or
privilege preclude other or further exercise thereof or of any other right,
power or privilege.

                                    * * * * *

                                       22
<PAGE>

         IN WITNESS WHEREOF, the Buyer and the Company have caused this Common
Stock Purchase Agreement to be duly executed as of the date first written above.

                                      THE COMPANY:
                                      ------------

                                      AETHLON MEDICAL, INC.

                                      By:
                                          --------------------------------
                                      Name: James A. Joyce
                                      Title: Chief Executive Officer

                                      BUYER:
                                      ------

                                      FUSION CAPITAL FUND II, LLC
                                      BY: FUSION CAPITAL PARTNERS, LLC
                                      BY: ROCKLEDGE CAPITAL CORPORATION

                                      By:
                                          --------------------------------
                                      Name: Joshua B. Scheinfeld
                                      Title: President

                                       23

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