Document:

Exhibit
10.1

    ThermoEnergy
Corporation

    

    Securities
Purchase Agreement

    

    This Securities Purchase Agreement
(this “Agreement”) is
dated as of ______________, 2009, by and between ThermoEnergy Corporation, a
Delaware corporation (the
“Company”), and _____________________ (the “Investor”).

    

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

    

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

    

    ARTICLE
1

    

    Definitions

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

    “Closing Date” means the date
on which the Closing occurs.

    

    “Commission” means the
Securities and Exchange Commission.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

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

    

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

    

    “Company Counsel” means Nixon
Peabody, LLP.

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

     

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

     

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

    

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

    

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

     

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

     

    “Filing Date” means the date that is 120 days after the Closing
Date.

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

     

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

     

    “Post-Effective Amendment Filing
Deadline”  means the seventh Business Day after the
Registration Statement ceases to be effective pursuant to applicable securities
laws due to the passage of time or the occurrence of an event requiring the
Company to file a Post-Effective Amendment.

     

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

     

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

    

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

    

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

    

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

    

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

    

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

    

    “Registrable Securities” means
the Shares and the Warrant Shares; provided, however, that the Investor shall
not be required to exercise the Warrants in order to have the Warrant Shares
included in any Registration Statement.

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

     

    
      
         

      

      
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    “Series A Preferred Stock”
means the shares of the preferred stock of the Company, par value $0.01 per
share, that have been designated as “Series A Convertible Preferred
Stock.”

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

    ARTICLE
2

    

    Purchase and
Sale

    

    Section
2.1.  Issuance
of Securities at the Closing.  Upon the terms and subject to
the conditions set forth in this Agreement, and in accordance with applicable
law, the Company agrees to sell to the Investor, and the Investor agrees to
purchase from the Company, for the purchase price of $0.35 per Unit (the “Purchase Price”), on the
Closing Date, ____________ Units, each Unit to consist of (i) one Share and (ii)
a Warrant to purchase 0.50 share of Common Stock.

     

    Section
2.2.    Payment
of Purchase Price.  As consideration for the issuance of the
Securities being purchased at each Closing, the Investor shall on the respective
Closing Date pay to the Company, by wire transfer or other form of immediately
available funds, an amount equal to applicable aggregate Purchase Price for the
Securities being purchased at such Closing.

     

    
      
         

      

      
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    Section
2.3.  Delivery
of Securities.  At each Closing, the Company shall, against
payment by the Investor of the applicable Purchase Price, (i) issue to the
Investor the Warrants included in the Units being purchased at such Closing and
(ii) execute and deliver to the transfer agent for the Common Stock irrevocable
instructions to issue to the Investor the number of Shares included in the Units
being purchased at such Closing.

     

    Section 2.4. Additional
Closing Deliveries.  At each Closing,
the Company shall deliver or cause to be delivered to the Investor the following
(the “Company
Deliverables”):

    

    
      	
               
      

            	
              (i)

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

            

    

    

    
      	
               
      

            	
              (ii)

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

            

    

    

    
      	
               
      

            	
              (iii)

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

            

    

    

    
      	
               
      

            	
              (A)

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

            

    

    

    
      	
               
      

            	
              (B)

            	
              the
      By-laws of the Company; and

            

    

    

    
      	
               
      

            	
              (C)

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

            

    

    

    
      	
               
      

            	
              (iv)

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

            

    

     

    ARTICLE
3

    

    Representations and
Warranties

    

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

    

    
      	
               
      

            	
              (a)

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

            

    

     

    
      
         

      

      
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              (b)

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

            

    

    

    
      	
               
      

            	
              (c)

            	
              Authorization;
      Enforcement. The Company has the
      requisite corporate power and authority to enter into and to consummate
      the transactions contemplated by each of the Transaction Documents and
      otherwise to carry out its obligations thereunder. The execution and
      delivery of each of the Transaction Documents by the Company and the
      consummation by it of the transactions contemplated thereby have been duly
      authorized by all necessary action on the part of the Company and no
      further action is required by the Company in connection therewith. Each
      Transaction Document has been (or upon delivery will have been) duly
      executed by the Company and, when delivered in accordance with the terms
      hereof, will constitute the valid and binding obligation of the Company
      enforceable against the Company in accordance with its terms, except as
      such enforceability may be limited by applicable bankruptcy, insolvency,
      reorganization, moratorium, liquidation or similar laws relating to, or
      affecting generally the enforcement of, creditors’ rights and remedies or
      by other equitable principles of general
  application.

            

    

    

    
      	
               
      

            	
              (d)

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

            

    

    

    
      	
               
      

            	
              (e)

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

            

    

     

    
      
         

      

      
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              (f)

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

            

    

    

    
      	
               
      

            	
              (g)

            	
              Capitalization. The authorized capital
      stock of the Company consists of 150,000,000 shares of Common Stock and
      20,000,000 shares of Preferred Stock, par value $0.01, of which 10,000,000
      shares have been designed Series A Preferred Stock and 10,000,000 shares
      are undesignated.  As of the close of business on the Business
      Day immediately prior to the date hereof, (i) 208,334 shares of Series A
      Preferred Stock were issued and outstanding, all of which are validly
      issued, fully-paid and non-assessable, (ii) 49,656,013 shares of Common
      Stock were issued and outstanding, all of which are validly issued,
      fully-paid and non-assessable, (iii) 83,797 shares of Common Stock were
      held by the Company in Treasury, (iv) 8,343,800 shares of Common Stock
      were reserved for issuance upon exercise of outstanding options granted to
      employees, directors, and consultants of the Company (the “Company Stock Options”);
      (v) 28,062,657 shares of Common Stock were reserved for issuance upon
      exercise of outstanding warrants to purchase Common Stock (the “Prior Warrants”); (vi)
      208,334 shares of Common Stock were reserved for issuance upon conversion
      of outstanding shares of Series A Preferred Stock, and (vii) 13,329,398
      shares of Common Stock were reserved for issuance upon conversion of other
      convertible notes, debentures or securities (“Prior Convertible
      Securities”).  No Person has any right of first refusal,
      preemptive right, right of participation, or any similar right to
      participate in the transactions contemplated by the Transaction
      Documents.  Except pursuant to (i) the outstanding shares of Series A
      Preferred Stock, (ii) the Company Stock Options, (iii) the Prior Warrants
      or (iv) the Prior Convertible Securities, or as a result of the purchase
      and sale of the Securities as contemplated by this Agreement, there are no
      outstanding options, warrants, script rights to subscribe to, calls or
      commitments of any character whatsoever relating to, or securities, rights
      or obligations convertible into or exchangeable for, or giving any Person
      any right to subscribe for or acquire, any shares of Common Stock, or
      contracts, commitments, understandings or arrangements by which the
      Company or any Subsidiary is or may become bound to issue additional
      shares of Common Stock or Common Stock Equivalents.  The issue and
      sale of the Securities will not obligate the Company to issue shares of
      Common Stock or other securities to any Person (other than the Investor)
      and will not result in a right of any holder of Company securities to
      adjust the exercise or conversion price under such securities. No further
      approval or authorization of any stockholder, the Board of Directors of
      the Company or any other Person  is required for the issuance
      and sale of the Securities.  There are no stockholders agreements,
      voting agreements or other similar agreements with respect to the
      Company’s capital stock to which the Company is a party or, to the
      knowledge of the Company, between or among any of the Company’s
      stockholders.

            

    

     

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

     

    
      	
               
      

            	
              (h)

            	
              SEC
      Reports; Financial Statements.  The Company
      has filed all reports required to be filed by it under the Securities Act
      and the Exchange Act, including pursuant to Section 13(a) or 15(d)
      thereof, for the twelve months preceding the date hereof (the foregoing
      materials, being collectively referred to herein as the “SEC
      Reports”).  As of their respective dates, the SEC Reports
      complied in all material respects with the requirements of the Securities
      Act and the Exchange Act and the rules and regulations of the Commission
      promulgated thereunder, and none of the SEC Reports, when filed, contained
      any untrue statement of a material fact or omitted to state a material
      fact required to be stated therein or necessary in order to make the
      statements therein, in light of the circumstances under which they were
      made, not misleading.  The financial statements of the Company
      included in the SEC Reports comply in all material respects with
      applicable accounting requirements and the rules and regulations of the
      Commission with respect thereto as in effect at the time of
      filing.  Such financial statements have been prepared in
      accordance with GAAP applied on a consistent basis during the periods
      involved, except as may be otherwise specified in such financial
      statements or the notes thereto, and fairly present in all material
      respects the financial position of the Company and its consolidated
      Subsidiaries as of and for the dates thereof and the results of operations
      and cash flows for the periods then ended, subject, in the case of
      unaudited statements, to normal, immaterial, year-end audit
      adjustments.

            

    

    

    
      	
               
      

            	
              (i)

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

            

    

    

    
      	
               
      

            	
              (j)

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

            

    

     

    
      
         

      

      
        9

        
          

        

      

      
         

      

    

     

    
      	
               
      

            	
              (k)

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

            

    

    

    
      	
               
      

            	
              (l)

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

            

    

    

    
      	
               
      

            	
              (m)

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

            

    

    

    
      	
               
      

            	
              (n)

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

            

    

    

    
      	
               
      

            	
              (o)

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

            

    

     

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

     

    
      	
               
      

            	
              (p)

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

            

    

    

    
      	
               
      

            	
              (q)

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

            

    

    

    
      	
               
      

            	
              (r)

            	
              Sarbanes-Oxley;
      Internal Accounting Controls.  The Company is
      in material compliance with all provisions of the Sarbanes-Oxley Act of
      2002 (including the rules and regulations of the Commission adopted
      thereunder) which are applicable to it as of the Closing Date.  The
      Company’s certifying officers have evaluated the effectiveness of the
      Company’s controls and procedures as of the filing date of the most
      recently filed periodic report under the Exchange Act (such date, the
      “Evaluation
      Date”).  The Company presented in its most recently filed
      periodic report under the Exchange Act the conclusions of the certifying
      officers about the effectiveness of the disclosure controls and procedures
      based on their evaluations as of the Evaluation Date.  Since the
      Evaluation Date, there have been no significant changes in the Company’s
      internal controls (as such term is defined in Item 307(b) of Regulation
      S-K under the Exchange Act) or, to the Company’s knowledge, in other
      factors that could significantly affect the Company’s internal
      controls.  The Company maintains a standard system of accounting
      established and administered in accordance with
  GAAP.

            

    

    

    
      	
               
      

            	
              (s)

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

            

    

    

    
      	
               
      

            	
              (t)

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

            

    

     

    
      
         

      

      
        11

        
          

        

      

      
         

      

    

     

    
      	
               
      

            	
              (u)

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

            

    

    

    
      	
               
      

            	
              (v)

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

            

    

    

    
      	
               
      

            	
              (w)

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

            

    

    

    
      	
               
      

            	
              (x)

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

            

    

     

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

     

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

     

    
      	
               
      

            	
              (y)

            	
              Taxes.  The Company and its Subsidiaries have
      filed all necessary federal, state and foreign income and franchise tax
      returns when due (or obtained appropriate extensions for filing) and have
      paid or accrued all taxes shown as due thereon, and the Company has no
      knowledge of a tax deficiency which has been or might be asserted or
      threatened against it or any Subsidiary which would have a Material
      Adverse Effect.

            

    

     

    
      
         

      

      
        12

        
          

        

      

      
         

      

    

     

    
      	
               
      

            	
              (z)

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

            

    

     

    
      	
               
      

            	
              (aa)

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

            

    

     

    
      	
               
      

            	
              (bb)

            	
              Foreign
      Assets Control Regulations and Anti-Money Laundering.

            

    

     

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

     

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

     

    
      
         

      

      
        13

        
          

        

      

      
         

      

    

     

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

    

    
      	
               
      

            	
              (a)

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

            

    

    

    
      	
               
      

            	
              (b)

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

            

    

    

    
      	
               
      

            	
              (c)

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

            

    

    

    
      	
               
      

            	
              (d)

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

            

    

    

    
      	
               
      

            	
              (e)

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

            

    

     

    
      	
               
      

            	
              (f)

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

            

    

     

    
      
         

      

      
        14

        
          

        

      

      
         

      

    

    ARTICLE
4

    

    Registration
Rights

    

    Section
4.1.   Shelf
Registration.

     

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

     

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

     

    
      
         

      

      
        15

        
          

        

      

      
         

      

    

     

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

     

    (e)  Except
as specifically authorized hereby or as the Investor may agree in writing, the
Company shall not, prior to the Effective Date of the Registration Statement,
prepare and file with the Commission a registration statement relating to an
offering for its own account or the account of others under the Securities Act
of any of its equity securities.  The Investor acknowledges that the
Company has obligations to register shares of Common Stock under the Securities
Act for sale by prior investors in the Company and that the Company may be
prohibited from filing a Registration Statement covering the Registrable
Securities until the Company’s registration obligations to such prior investors
have been satisfied.

     

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

     

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

     

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

     

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

     

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

     

    
      
         

      

      
        16

        
          

        

      

      
         

      

    

     

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

     

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

     

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

     

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

     

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

     

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

     

    
      
         

      

      
        17

        
          

        

      

      
         

      

    

     

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

     

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

     

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

     

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

     

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

     

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

     

    
      
         

      

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

     

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

     

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

     

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

     

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

     

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

     

    
      
         

      

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

     

    Section
4.6.Indemnification
and Contribution

     

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

     

    (b)Indemnification
by the Investor and Underwriters.  The Investor
agrees, as a consequence of the inclusion of any of its Registrable Securities
in a Registration Statement, and each underwriter, if any, which facilitates the
disposition of Registrable Securities shall agree, severally and not jointly, as a consequence of
facilitating such disposition of Registrable Securities to (i) indemnify
and hold harmless the Company, its directors (including any person who, with his
or her consent, is named in the Registration Statement as a director nominee of
the Company), its officers who sign any Registration Statement and each Person,
if any, who controls the Company within the meaning of either Section 15 of
the Securities Act or Section 20 of the Exchange Act, against any losses,
claims, damages or liabilities to which the Company or such other persons may
become subject, under the Securities Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon an untrue statement or alleged untrue statement of a material
fact contained in such Registration Statement or Prospectus or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein (in
light of the circumstances under which they were made, in the case of the
Prospectus), not misleading, in each case to the extent, but only to the extent,
that such untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with written information
furnished to the Company by the Investor or underwriter expressly for use
therein, and (ii) reimburse the Company for
any legal or other expenses incurred by the Company in connection with
investigating or defending any such action or claim as such expenses are
incurred; provided,
however, that the Investor shall not be liable under this
Section 4.5(b) for any amount in excess of the net proceeds paid to the
Investor in respect of Registrable Securities sold by it.

     

    
      
         

      

      
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    (c)Notice of
Claims, etc.  Promptly after receipt
by a Person seeking indemnification pursuant to this Section 4.5 (an “Indemnified Party”) of written notice of any
investigation, claim, proceeding or other action in respect of which
indemnification is being sought (each, a “Claim”), the Indemnified Party
promptly shall notify the Person against whom indemnification pursuant to this
Section 4.5 is being sought (the “Indemnifying Party”) of the commencement
thereof; but the omission to so notify the Indemnifying Party shall not relieve
it from any liability that it otherwise may have to the Indemnified Party,
except to the extent that the Indemnifying Party is materially prejudiced and
forfeits substantive rights and defenses by reason of such
failure.  In connection with any Claim as to which both the
Indemnifying Party and the Indemnified Party are parties, the Indemnifying Party
shall be entitled to assume the defense thereof.  Notwithstanding the
assumption of the defense of any Claim by the Indemnifying Party, the
Indemnified Party shall have the right to employ separate legal counsel and to
participate in the defense of such Claim, and the Indemnifying Party shall bear
the reasonable fees, out-of-pocket costs and expenses of such separate legal
counsel to the Indemnified Party if (and only if): (i) the Indemnifying
Party shall have agreed to pay such fees, costs and expenses, (ii) the
Indemnified Party shall reasonably have concluded that representation of the
Indemnified Party by the Indemnifying Party by the same legal counsel would not
be appropriate due to actual or, as reasonably determined by legal counsel to
the Indemnified Party, potentially differing interests between such parties in
the conduct of the defense of such Claim, or if there may be legal defenses
available to the Indemnified Party that are in addition to or disparate from
those available to the Indemnifying Party, or (iii) the Indemnifying Party
shall have failed to employ legal counsel reasonably satisfactory to the
Indemnified Party within a reasonable period of time after notice of the
commencement of such Claim.  If the Indemnified Party employs separate
legal counsel in circumstances other than as described in the preceding
sentence, the fees, costs and expenses of such legal counsel shall be borne
exclusively by the Indemnified Party.  Except as provided above, the
Indemnifying Party shall not, in connection with any Claim in the same
jurisdiction, be liable for the fees and expenses of more than one firm of
counsel for the Indemnified Party (together with appropriate local
counsel).  The Indemnified Party shall not, without the prior written
consent of the Indemnifying Party (which consent shall not unreasonably be
withheld), settle or compromise any Claim or consent to the entry of any
judgment that does not include an unconditional release of the Indemnifying
Party from all liabilities with respect to such Claim or judgment or contain any admission of
wrongdoing.

     

    (d)Contribution.  If
the indemnification provided for in this Section 4.5 is unavailable to or
insufficient to hold harmless an Indemnified Party in respect of any losses,
claims, damages or liabilities (or actions in respect thereof) referred to
therein, then each Indemnifying Party shall contribute to the amount paid or
payable by such Indemnified Party as a result of such losses, claims, damages or
liabilities (or actions in respect thereof) in such proportion as is appropriate
to reflect the relative fault of the Indemnifying Party and the Indemnified
Party in connection with the statements or omissions or alleged statements or omissions which resulted
in such losses, claims, damages or liabilities (or actions in respect thereof),
as well as any other relevant equitable considerations.  The relative
fault of such Indemnifying Party and Indemnified Party shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or omission or alleged omission to state a material fact
relates to information supplied by such Indemnifying Party or by such
Indemnified Party, and the parties’ relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission.  The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 4.5(d) were determined
by pro rata allocation (even if the Investors or any underwriters were treated
as one entity for such purpose) or by any other method of allocation which does
not take account of the equitable considerations referred to in this
Section 4.5(d).  The amount paid or payable by an Indemnified
Party as a result of the losses, claims, damages or liabilities (or actions in
respect thereof) referred to above shall be deemed to include any legal or other
fees or expenses reasonably incurred by such Indemnified Party in connection
with investigating or defending any such action or claim.  No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f)
of the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.

     

    
      
         

      

      
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    (e)Limitation
on Investor’s and Underwriters’ Obligations.  Notwithstanding
any other provision of this Section 4.5, in no event shall (i) the
Investor have any liability under this
Section 4.5 for any amounts in excess of the dollar amount of the proceeds
actually received by the Investor from the
sale of Registrable Securities (after deducting any fees, discounts and
commissions applicable thereto) pursuant to any Registration Statement under
which such Registrable Securities are registered under the Securities Act and
(ii) any underwriter be required to undertake liability to any Person
hereunder for any amounts in excess of the aggregate discount, commission or
other compensation payable to such underwriter with respect to the Registrable
Securities underwritten by it and distributed pursuant to the Registration
Statement.

     

    (f)Other
Liabilities.  The obligations of the Company under this
Section 4.5 shall be in addition to any liability which the Company may
otherwise have to any Indemnified Person and the obligations of any Indemnified
Person under this Section 4.5 shall be in addition to any liability which
such Indemnified Person may otherwise have to the Company.  The
remedies provided in this Section 4.5 are not exclusive and shall not limit any
rights or remedies which may otherwise be available to an indemnified party at
law or in equity.

     

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

     

    Section 4.7.  Common
Stock Issued Upon Stock Split, etc.  The provisions of this Article 4 shall
apply to any shares of Common Stock or any other securities issued as a dividend
or distribution in respect of the Shares or the Warrant
Shares.

    

    ARTICLE
5

    

    Other Agreements of the
Parties

    

    Section
5.1.         Certificates;
Legends.

    

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

     

    
      
         

      

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

    

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

     

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

     

    
      
         

      

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

    

    Section
5.4.  Use of
Proceeds.  The Company shall
use the net proceeds from the sale of the Securities hereunder (i) for working
capital purposes, (ii) to purchase fixed assets used in the development or
production of the Company’s products or (iii) for investment in new technologies
related to the Company’s business.

    

    Section
5.5.  Right of
First Refusal

     

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

     

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

     

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

     

    
      
         

      

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

    

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

     

    ARTICLE
6

    

    Conditions Precedent to
Closing

    

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

    

    
      	
               
      

            	
              (a)

            	
              Representations
      and Warranties. The Company shall have
      delivered a certificate of the Company’s Chief Executive Officer
      certifying that the representations and warranties of the Company
      contained herein are true and correct in all material respects as of the
      date when made and as of the Closing Date as though made on and as of such
      Closing Date;

            

    

    

    
      	
               
      

            	
              (b)

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

            

    

    

    
      	
               
      

            	
              (c)

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

            

    

    

    
      	
               
      

            	
              (d)

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

            

    

    

    
      	
               
      

            	
              (e)

            	
              Company
      Deliverables. The Company shall have
      delivered the Company Deliverables in accordance with Section
      2.2(a).

            

    

    

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

    

    
      	
               
      

            	
              (a)

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

            

    

     

    
      
         

      

      
        25

        
          

        

      

      
         

      

    

     

    
      	
               
      

            	
              (b)

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

            

    

    

    
      	
               
      

            	
              (c)

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

            

    

    

    
      	
               
      

            	
              (d)

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

            

    

     

    ARTICLE
7

    

    Miscellaneous

    

    Section 7.1.  Fees and
Expenses.  Each party shall
pay the fees and expenses of its advisers, counsel, accountants and other
experts, if any, and all other expenses incurred by such party incident to the
negotiation, preparation, execution, delivery and performance of the Transaction
Documents. The Company shall pay all stamp and other taxes and duties levied in
connection with the sale of the Shares.

    

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

    

    Section 7.3.  Notices.  Any and all
notices or other communications or deliveries required or permitted to be
provided hereunder shall be in writing and shall be deemed given and effective
on the earliest of (a) the date of transmission, if such notice or communication
is delivered via facsimile (provided the sender receives a machine-generated
confirmation of successful transmission) at the facsimile number specified in
this Section prior to 6:30 p.m. (Little Rock time) on a Business Day, (b) the
next Business Day after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number specified in
this Section on a day that is not a Business Day or later than 6:30 p.m. (Little
Rock time) on any Business Day, (c) the Business Day following the date of
transmission, if sent by a nationally recognized overnight courier service, or
(d) upon actual receipt by the party to whom such notice is required to be
given. The address for such notices and communications shall be as
follows:

     

    
      
        
          
            
              
                
                  	
                          If
      to the Company:

                        	
                          ThermoEnergy
      Corporation

                        
	 
      	
                          Attn.:  Andrew
      T. Melton

                        
	 
      	
                          124
      West Capitol Avenue, Suite 880

                        
	 
      	
                          Little
      Rock, AR  72201

                        
	 
      	 
      
	 
      	
                          Telephone:  (501)
      376-6477

                        
	 
      	
                          Facsimile:  (501)
      376-5249

                        
	 
      	 
      
	
                          With
      a copy to:

                        	
                          Nixon
      Peabody, LLP

                        
	 
      	
                          Attn.:  William
      E. Kelly,
Esq.

                        

                

              

            

          

        

      

    

     

    
      
         

      

      
        26

        
          

        

      

      
         

      

    

     

    
      	 
      	
              100
      Summer Street

            
	 
      	
              Boston,
      MA  02110

            
	 
      	 
      
	
              If
      to the Investor:

            	
              To
      the address set forth under the Investor’s name on the Investor’s
      Counterpart Signature Page to this
Agreement;

            

    

     

    Or, in
either case, such other address as may be designated in writing hereafter, in
the same manner, by the addressee.

    

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

    

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

    

    
      	
               
      

            	
              (a)

            	
              by
      written agreement of the Investor and the Company;
  or

            

    

    

    
      	
               
      

            	
              (b)

            	
              by
      the Company or the Investor, upon written notice to the other, if the
      Closing shall not have taken place by 6:30 p.m., Little Rock time, on
      April 30, 2009; provided, that
      the right to terminate this Agreement under this Section 7.5(b) shall not
      be available to any Person whose failure to comply with its obligations
      under this Agreement has been the cause of or resulted in the failure of
      the Closing to occur on or before such time, to the extent such delay is
      caused by such Person.

            

    

    

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

    

    Section 7.6.  Construction.  The headings
herein are for convenience only, do not constitute a part of this Agreement and
shall not be deemed to limit or affect any of the provisions hereof. The
language used in this Agreement will be deemed to be the language chosen by the
parties to express their mutual intent, and no rules of strict construction will
be applied against any party. This Agreement shall be construed as if drafted
jointly by the parties, and no presumption or burden of proof shall arise
favoring or disfavoring any party by virtue of the authorship of any provisions
of this Agreement or any of the Transaction Documents.

    

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

    

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

     

    
      
         

      

      
        27

        
          

        

      

      
         

      

    

     

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

    

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

    

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

    

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

     

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

     

    
      
         

      

      
        28

        
          

        

      

      
         

      

    

     

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

    

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

    

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

    

    
      
        
          
            
              
                
                  	
                          [Investor’s
      Counterpart Signature Page follows]

                        	
                          ThermoEnergy
      Corporation

                        
	 
      	 
      
	 
      	
                          By:

                        	
                                                                                           

                        
	 
      	
                          Andrew T.
  Melton

                        
	 
      	
                          Senior
      Vice President and
CFO

                        

                

              

            

          

        

      

    

     

    
      
         

      

      
        29

        
          

        

      

      
         

      

    

    ThermoEnergy
Corporation

    

    Investor’s
Counterpart Signature Page

    to

    Securities
Purchase Agreement

    

    The
undersigned Investor hereby executes the Securities Purchase Agreement dated as
of ______________, 2009 by and between the Company and the Investor (the
“Agreement”).  By execution of this Counterpart Signature Page, the
undersigned hereby shall become a party to the Agreement and agrees to be bound
by and obtain the benefit of the rights and obligations thereunder.

     

    In
witness whereof, the undersigned has executed this Counterpart Signature Page on
the date written below.

    

    Date:
__________________

     

    
      
        
          
            
              
                
                  
                    
                      
                        
                          	 
      	 
      
	 
      	
                                  Printed
      Name of Investor

                                
	 
      	 
      
	 
      	 
      
	 
      	
                                  Signature

                                
	 
      	 
      
	 
      	 
      
	 
      	
                                  Name
      of Signatory (for any entity only)

                                
	 
      	 
      
	 
      	 
      
	 
      	
                                  Title
      of Signatory (for an entity only)

                                
	 
      	 
      
	 
      	 
      
	 
      	 
      
	 
      	 
      
	 
      	
                                  Address
      of Investor

                                
	 
      	 
      
	 
      	 
      
	 
      	
                                  Investor’s
      Fax
Number

                                

                        

                      

                    

                  

                

              

            

          

        

      

    

     

    
      
         

      

      
        30

        
          

        

      

      
         

      

    

    EXHIBIT
C

    

    Plan
of Distribution

    

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

    

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

    

    - ordinary brokerage transactions and
transactions in which the broker-dealer solicits purchasers;

    

    - block trades in which the
broker-dealer will attempt to sell the shares as agent, but may position and
resell a portion of the block as principal to facilitate the
transaction;

    

    - purchases by a broker-dealer as
principal and resale by the broker-dealer for its account;

    

    - an exchange distribution in
accordance with the rules of the applicable exchange;

    

    - privately negotiated
transactions;

    

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

    

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

    

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

    

    - a combination of any such methods of
sale.

    

    The selling stockholders may, from time
to time, pledge or grant a security interest in some or all of the shares of
common stock owned by them and, if they default in the performance of their
secured obligations, the pledgees or secured parties may offer and sell the
shares of common stock, from time to time, under this prospectus, or under an
amendment to this prospectus under Rule 424(b)(3) or other applicable provision
of the Securities Act amending the list of selling stockholders to include the
pledgee, transferee or other successors in interest as selling stockholders
under this prospectus.  The selling stockholders also may transfer the
shares of common stock in other circumstances, in which case the transferees,
pledgees or other successors in interest will be the selling beneficial owners
for purposes of this prospectus.

    

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

     

    
      
         

      

      
        31

        
          

        

      

      
         

      

    

     

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

    

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

    

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

    

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

    

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

    

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

    

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

    

    We have agreed with the selling
stockholders to keep the registration statement of which this prospectus
constitutes a part effective until the earlier of (1) such time as all of the
shares covered by this prospectus have been disposed of pursuant to and in
accordance with the registration statement or (2) the date on which the shares
may be sold without restriction pursuant to Rule 144 of the Securities
Act.

    
      
         

      

      
        32Exhibit
10.2

      ThermoEnergy
Corporation

      

      Securities
Purchase Agreement

      

      This Securities Purchase Agreement
(this “Agreement”) is
dated as of April 27, 2009, by and between ThermoEnergy Corporation, a Delaware
corporation (the
“Company”), and the persons and entities identified on Schedule I hereto
(each an “Investor” and,
collectively, the
“Investors”).

      

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

      

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

       

      ARTICLE
1

      

      Definitions

      

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

      

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

      

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

      

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

      

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

      

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

      

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

      

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

      

      “Closing Date” means the date
on which the Closing occurs.

      

      “Commission” means the
Securities and Exchange Commission.

      
        
           

        

        
           

          
            

          

        

        
           

        

      

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

      

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

      

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

      

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

      

      “Conversion Shares” means the
shares of Common Stock issuable upon conversion of the Notes.

      

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

      

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

      

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

      

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

      

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

       

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

      

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

      

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

       

      “Filing Date” means the date that is 120 days after the Closing
Date.

      

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

      

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

      
        
           

        

        
          2

          
            

          

        

        
           

        

      

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

      

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

      

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

      

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

      

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

      

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

      

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

      

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

      

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

      

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

      

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

      

      “Notes” means the 10%
Convertible Promissory Notes, in the form of Exhibit A, which
are issuable to the Investor at the Closing.

      

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

      

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

      

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

      

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

       

      “Post-Effective Amendment Filing
Deadline”  means the seventh Business Day after the
Registration Statement ceases to be effective pursuant to applicable securities
laws due to the passage of time or the occurrence of an event requiring the
Company to file a Post-Effective Amendment.

       

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

       

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

      

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

       

      
        
           

        

        
          3

          
            

          

        

        
           

        

      

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

      

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

      

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

      

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

      

      “Registrable Securities” means
the Conversion Shares and the Warrant Shares; provided, however, that the
Investors shall not be required to convert the Notes in order to have the
Conversion Shares included in any Registration Statement or to exercise the
Warrants in order to have the Warrant Shares included in any Registration
Statement; and provided, further, that Securities shall cease to be Registrable
Securities at such time as they may be resold to the public, free of volume
limitations, without registration under the Securities Act..

      

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

      

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

      

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

      

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

      

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

      

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

      

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

      

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

      

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

      

      “Securities” means the Notes,
the Warrants, the Conversion Shares and the Warrant Shares.

      

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

      

      “Series A Preferred Stock”
means the shares of the preferred stock of the Company, par value $0.01 per
share, that have been designated as “Series A Convertible Preferred
Stock.”

      

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

      

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

       

      
        
           

        

        
          4

          
            

          

        

        
           

        

      

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

      

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

      

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

      

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

      

      “Unit” means a Unit consisting
of a Note in the original principal amount of $1.00 and a Warrant to purchase
five shares of Common Stock, issued in combination.

      

      “Warrants” means the Common
Stock Purchase Warrants, in the form of Exhibit B, which
are issuable to the Investor at the Closing.

      

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

      

      ARTICLE
2

      

      Purchase and
Sale

      

      Section
2.1.  Issuance
of Securities at the Closing.  Upon the terms and subject to
the conditions set forth in this Agreement, and in accordance with applicable
law, the Company agrees to sell to each Investor, and each Investor agrees to
purchase from the Company, for the purchase price of $1.00 per Unit (the “Purchase Price”), on the
Closing Date, 100,000 Units, consisting of (i) a Note in the original principal
amount of $100,000 and (ii) a Warrant to purchase 500,000 shares of Common
Stock.

      

      Section
2.2.    Payment
of Purchase Price.  As consideration for the issuance of the
Securities being purchased at each Closing, each Investor shall on the Closing
Date pay to the Company, by wire transfer or other form of immediately available
funds, an amount equal to applicable Purchase Price for the Securities being
purchased by such Investor at the Closing.

       

      Section
2.3.  Delivery
of Securities.  At the Closing, the Company shall, against
payment by each Investor of the applicable Purchase Price, issue to such
Investor the Note and Warrant included in the Units being purchased by
it  at the Closing.

      
        
           

        

        
          5

          
            

          

        

        
           

        

      

      ARTICLE
3

      

      Representations and
Warranties

      

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

      

      
        	
                 
      

              	
                (a)

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

              

      

      

      
        	
                 
      

              	
                (b)

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

              

      

      

      
        	
                 
      

              	
                (c)

              	
                Authorization;
      Enforceability. The Company has the
      requisite corporate power and authority to enter into and to consummate
      the transactions contemplated by each of the Transaction Documents and
      otherwise to carry out its obligations thereunder. The execution and
      delivery of each of the Transaction Documents by the Company and the
      consummation by it of the transactions contemplated thereby have been duly
      authorized by all necessary action on the part of the Company and no
      further action is required by the Company in connection therewith. Each
      Transaction Document has been (or upon delivery will have been) duly
      executed by the Company and, when delivered in accordance with the terms
      hereof, will constitute the valid and binding obligation of the Company
      enforceable against the Company in accordance with its terms, except as
      such enforceability may be limited by applicable bankruptcy, insolvency,
      reorganization, moratorium, liquidation or similar laws relating to, or
      affecting generally the enforcement of, creditors’ rights and remedies or
      by other equitable principles of general
  application.

              

      

      

      
        	
                 
      

              	
                (d)

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

              

      

      
        
           

        

        
          6

          
            

          

        

        
           

        

      

      

      
        	
                 
      

              	
                (e)

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

              

      

      

      
        	
                 
      

              	
                (f)

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

              

      

      

      
        	
                 
      

              	
                (g)

              	
                Capitalization. The authorized capital
      stock of the Company consists of 150,000,000 shares of Common Stock and
      20,000,000 shares of Preferred Stock, par value $0.01, of which 10,000,000
      shares have been designed Series A Preferred Stock and 10,000,000 shares
      are undesignated.  As of the close of business on the Business
      Day immediately prior to the date hereof, (i) 208,334 shares of Series A
      Preferred Stock were issued and outstanding, all of which are validly
      issued, fully-paid and non-assessable, (ii) 50,280,437 shares of Common
      Stock were issued and outstanding, all of which are validly issued,
      fully-paid and non-assessable, (iii) 83,797 shares of Common Stock were
      held by the Company in Treasury, (iv) 8,113,800 shares of Common Stock
      were reserved for issuance upon exercise of outstanding options granted to
      employees, directors, and consultants of the Company (the “Company Stock Options”);
      (v) 26,628,592 shares of Common Stock were reserved for issuance upon
      exercise of outstanding warrants to purchase Common Stock (the “Prior Warrants”); (vi)
      208,334 shares of Common Stock were reserved for issuance upon conversion
      of outstanding shares of Series A Preferred Stock, and (vii) 13,329,398
      shares of Common Stock were reserved for issuance upon conversion of other
      convertible notes, debentures or securities (“Prior Convertible
      Securities”).  Except pursuant to (i) the outstanding
      shares of Series A Preferred Stock, (ii) the Company Stock Options, (iii)
      the Prior Warrants or (iv) the Prior Convertible Securities, or as a
      result of the purchase and sale of the Securities as contemplated by this
      Agreement, or as otherwise disclosed by the Company to the Investors in
      writing, there are no outstanding options, warrants, script rights to
      subscribe to, calls or commitments of any character whatsoever relating
      to, or securities, rights or obligations convertible into or exchangeable
      for, or giving any Person any right to subscribe for or acquire, any
      shares of Common Stock, or contracts, commitments, understandings or
      arrangements by which the Company or any Subsidiary is or may become bound
      to issue additional shares of Common Stock or Common Stock
      Equivalents.  The issue and sale of the Securities will not obligate
      the Company to issue shares of Common Stock or other securities to any
      Person (other than the Investor) and will not result in a right of any
      holder of Company securities to adjust the exercise or conversion price
      under such securities. No further approval or authorization of any
      stockholder, the Board of Directors of the Company or any other
      Person  is required for the issuance and sale of the
      Securities.  There are no stockholders agreements, voting agreements
      or other similar agreements with respect to the Company’s capital stock to
      which the Company is a party or, to the knowledge of the Company, between
      or among any of the Company’s
stockholders.

              

      

       

      
        
           

        

        
          7

          
            

          

        

        
           

        

      

      
        	
                 
      

              	
                (h)

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

              

      

      

      
        	
                 
      

              	
                (i)

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

              

      

       

      
        
           

        

        
          8

          
            

          

        

        
           

        

      

      
        	
                 
      

              	
                (j)

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

              

      

      

      
        	
                 
      

              	
                (k)

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

              

      

      

      
        	
                 
      

              	
                (l)

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

              

      

      

      
        	
                 
      

              	
                (m)

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

              

      

       

      
        
           

        

        
          9

          
            

          

        

        
           

        

      

      
        	
                 
      

              	
                (n)

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

              

      

      

      
        	
                 
      

              	
                (o)

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

              

      

      

      
        	
                 
      

              	
                (p)

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

              

      

      

      
        	
                 
      

              	
                (q)

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

              

      

      

      
        	
                 
      

              	
                (r)

              	
                Sarbanes-Oxley;
      Internal Accounting Controls.  The Company is
      in material compliance with all provisions of the Sarbanes-Oxley Act of
      2002 (including the rules and regulations of the Commission adopted
      thereunder) which are applicable to it as of the Closing Date.  The
      Company’s certifying officers have evaluated the effectiveness of the
      Company’s controls and procedures as of the filing date of the most
      recently filed periodic report under the Exchange Act (such date, the
      “Evaluation
      Date”).  The Company presented in its most recently filed
      periodic report under the Exchange Act the conclusions of the certifying
      officers about the effectiveness of the disclosure controls and procedures
      based on their evaluations as of the Evaluation Date.  Since the
      Evaluation Date, there have been no significant changes in the Company’s
      internal controls (as such term is defined in Item 307(b) of Regulation
      S-K under the Exchange Act) or, to the Company’s knowledge, in other
      factors that could significantly affect the Company’s internal
      controls.  The Company maintains a standard system of accounting
      established and administered in accordance with
  GAAP.

              

      

      
        
           

        

        
          10

          
            

          

        

        
           

        

      

      
        	
                 
      

              	
                (s)

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

              

      

      

      
        	
                 
      

              	
                (t)

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

              

      

      

      
        	
                 
      

              	
                (u)

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

              

      

      

      
        	
                 
      

              	
                (v)

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

              

      

      

      
        	
                 
      

              	
                (w)

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

              

      

      
        
           

        

        
          11

          
            

          

        

        
           

        

      

       

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

       

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

       

      
        	
                 
      

              	
                (x)

              	
                Taxes.  Except as disclosed by the
      Company to the Investors in writing, the Company and its Subsidiaries have filed all
      necessary federal, state and foreign income and franchise tax returns when
      due (or obtained appropriate extensions for filing) and have paid or
      accrued all taxes shown as due thereon, and the Company has no knowledge
      of a tax deficiency which has been or might be asserted or threatened
      against it or any Subsidiary which would have a Material Adverse
      Effect.

              

      

       

      
        	
                 
      

              	
                (y)

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

              

      

       

      
        	
                 
      

              	
                (z)

              	
                Foreign
      Assets Control Regulations and Anti-Money Laundering.

              

      

       

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

       

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

      
        
           

        

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

      

      
        	
                 
      

              	
                (a)

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

              

      

      

      
        	
                 
      

              	
                (b)

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

              

      

      

      
        	
                 
      

              	
                (c)

              	
                Investor
      Status.
      Such Investor is an “accredited investor” as defined in Rule 501(a) under
      the Securities Act.   Such Investor is not a registered
      broker-dealer under Section 15 of the Exchange
  Act.

              

      

      

      
        	
                 
      

              	
                (d)

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

              

      

      

      
        	
                 
      

              	
                (e)

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

              

      

       

      
        	
                 
      

              	
                (f)

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

              

      

      
        
           

        

        
          13

          
            

          

        

        
           

        

      

      ARTICLE
4

      

      Registration
Rights

      

      Section
4.1.               Shelf
Registration.

       

      (a)  On
or prior to the Filing Date, the Company shall prepare and file with the
Commission a “shelf” Registration Statement covering the resale of all
Registrable Securities for an offering to be made on a continuous basis pursuant
to Rule 415.  The Registration Statement shall be on a Form S-3; in
the event Form S-3 is not available for the registration of the resale of
Registrable Securities hereunder, the Company shall (i) register the resale of
the Registrable Securities on another appropriate form in accordance herewith
and (ii) attempt to register the Registrable Securities on Form S-3 as soon as
such form is available, provided that the Company shall maintain the
effectiveness of the Registration Statements then in effect until such time as a
Registration Statement on Form S-3 covering the Registrable Securities has been
declared effective by the Commission. If at any time the staff of the Commission
takes the position that the offering of some or all of the Registrable
Securities in a Registration Statement is not eligible to be made on a delayed
or continuous basis under the provisions of Rule 415 under the Securities Act or
requires any Investor to be named as an “underwriter” (an “SEC Objection”), the Company
shall promptly notify the Investors of such SEC Objection and if the Investors
shall request, the Company shall use its commercially reasonable efforts to
persuade the staff of the Commission that the offering contemplated by the
Registration Statement is a valid secondary offering and not an offering “by or
on behalf of the issuer” as defined in Rule 415 and that none of the Investors
is an “underwriter” (a “Rule
415 Response Effort”).  The Investors shall have the right to
participate or have its counsel participate in any meetings or discussions with
the staff of the Commission regarding such position and to comment or have its
counsel comment on any written submission made to the staff of the Commission
with respect thereto, and to have such comments relayed to the staff of the
Commission with the consent of the Company, not to be unreasonably
withheld.  No such written submission shall be made to the staff of
the Commission to which the Investors’ counsel reasonably objects.  In
the event that, despite the Company’s commercially reasonable efforts and
compliance with the terms of this Section 4.1(a), the staff of the Commission
refuses to alter its position, the Company shall (i) remove from the
Registration Statement such portion of the Registrable Securities (the “Cut Back Shares”) and/or (ii)
agree to such restrictions and limitations on the registration and resale of the
Registrable Securities as the staff of the Commission may require to assure the
Company’s compliance with the requirements of Rule 415; provided, however, that
the Company shall not agree to name any Investor as an “underwriter” in such
Registration Statement without the prior written consent of the Investor
(collectively, the “SEC
Restrictions”).  Notwithstanding any other provision of this
Agreement to the contrary, no liquidated damages shall accrue pursuant to
Section 4.1(d) (i) during the pendency of a Rule 415 Response Effort or (ii) on
or as to any Cut Back Shares until such time as the Company is able, using
commercially reasonable efforts, to effect the filing of an additional
Registration Statement with respect to the Cut Back Shares in accordance with
any SEC Restrictions (such date, the “Restriction Termination
Date”).  From and after the Restriction Termination Date, all
of the provisions of this Article 4 (including the liquidated damages
provisions) shall again be applicable to the Cut Back Shares; provided, however,
that for such purposes, references to the Filing Date shall be deemed to be the
date that is 30 days after the Restriction Termination Date.

       

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

      
        
           

        

        
          14

          
            

          

        

        
           

        

      

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

       

      (e)  Except
as specifically authorized hereby or as the Investors may agree in writing, the
Company shall not, prior to the Effective Date of the Registration Statement,
prepare and file with the Commission a registration statement relating to an
offering for its own account or the account of others under the Securities Act
of any of its equity securities.  The Investors acknowledge that the
Company has obligations to register shares of Common Stock under the Securities
Act for sale by prior investors in the Company and that the Company may be
prohibited from filing a Registration Statement covering the Registrable
Securities until the Company’s registration obligations to such prior investors
have been satisfied.  Notwithstanding any other provision of this
Agreement to the contrary, no liquidated damages shall accrue pursuant to
Section 4.1(d) so long as the Company is prohibited from filing a Registration
Statement covering the Registrable Securities due to the Company’s registration
obligations to prior investors.

       

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

       

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

       

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

       

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

      
        
           

        

        
          15

          
            

          

        

        
           

        

      

       

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

       

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

       

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

       

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

       

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

       

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

      
        
           

        

        
          16

          
            

          

        

        
           

        

      

       

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

       

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

       

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

       

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

       

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

       

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

       

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

      
        
           

        

        
          17

          
            

          

        

        
           

        

      

       

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

       

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

       

                       (b)The Investors agree to cooperate with
the Company in connection with the preparation and filing of a Registration
Statement hereunder, unless the Investors have notified the Company in writing
of their election to exclude all of their Registrable Securities from such
Registration Statement;

       

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

       

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

       

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

      
        
           

        

        
          18

          
            

          

        

        
           

        

      

       

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

       

      Section
4.6.  Indemnification
and Contribution

       

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

       

                    (b)Indemnification
by the Investors and Underwriters.  Each Investor
agrees, as a consequence of the inclusion of any of his or its Registrable
Securities in a Registration Statement, and each underwriter, if any, which
facilitates the disposition of Registrable Securities shall agree, severally and not jointly, as a consequence of
facilitating such disposition of Registrable Securities to (i) indemnify
and hold harmless the Company, its directors (including any person who, with his
or her consent, is named in the Registration Statement as a director nominee of
the Company), its officers who sign any Registration Statement and each Person,
if any, who controls the Company within the meaning of either Section 15 of
the Securities Act or Section 20 of the Exchange Act, against any losses,
claims, damages or liabilities to which the Company or such other persons may
become subject, under the Securities Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon an untrue statement or alleged untrue statement of a material
fact contained in such Registration Statement or Prospectus or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein (in
light of the circumstances under which they were made, in the case of the
Prospectus), not misleading, in each case to the extent, but only to the extent,
that such untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with written information
furnished to the Company by the Investor or underwriter expressly for use
therein, and (ii) reimburse the Company for
any legal or other expenses incurred by the Company in connection with
investigating or defending any such action or claim as such expenses are
incurred; provided,
however, that the Investors shall not be liable under this
Section 4.5(b) for any amount in excess of the net proceeds paid to the
Investors in respect of Registrable Securities sold by them.

      
        
           

        

        
          19

          
            

          

        

        
           

        

      

       

                    (c)Notice of
Claims, etc.  Promptly after receipt
by a Person seeking indemnification pursuant to this Section 4.5 (an “Indemnified Party”) of written notice of any
investigation, claim, proceeding or other action in respect of which
indemnification is being sought (each, a “Claim”), the Indemnified Party
promptly shall notify the Person against whom indemnification pursuant to this
Section 4.5 is being sought (the “Indemnifying Party”) of the commencement
thereof; but the omission to so notify the Indemnifying Party shall not relieve
it from any liability that it otherwise may have to the Indemnified Party,
except to the extent that the Indemnifying Party is materially prejudiced and
forfeits substantive rights and defenses by reason of such
failure.  In connection with any Claim as to which both the
Indemnifying Party and the Indemnified Party are parties, the Indemnifying Party
shall be entitled to assume the defense thereof.  Notwithstanding the
assumption of the defense of any Claim by the Indemnifying Party, the
Indemnified Party shall have the right to employ separate legal counsel and to
participate in the defense of such Claim, and the Indemnifying Party shall bear
the reasonable fees, out-of-pocket costs and expenses of such separate legal
counsel to the Indemnified Party if (and only if): (i) the Indemnifying
Party shall have agreed to pay such fees, costs and expenses, (ii) the
Indemnified Party shall reasonably have concluded that representation of the
Indemnified Party by the Indemnifying Party by the same legal counsel would not
be appropriate due to actual or, as reasonably determined by legal counsel to
the Indemnified Party, potentially differing interests between such parties in
the conduct of the defense of such Claim, or if there may be legal defenses
available to the Indemnified Party that are in addition to or disparate from
those available to the Indemnifying Party, or (iii) the Indemnifying Party
shall have failed to employ legal counsel reasonably satisfactory to the
Indemnified Party within a reasonable period of time after notice of the
commencement of such Claim.  If the Indemnified Party employs separate
legal counsel in circumstances other than as described in the preceding
sentence, the fees, costs and expenses of such legal counsel shall be borne
exclusively by the Indemnified Party.  Except as provided above, the
Indemnifying Party shall not, in connection with any Claim in the same
jurisdiction, be liable for the fees and expenses of more than one firm of
counsel for the Indemnified Party (together with appropriate local
counsel).  The Indemnified Party shall not, without the prior written
consent of the Indemnifying Party (which consent shall not unreasonably be
withheld), settle or compromise any Claim or consent to the entry of any
judgment that does not include an unconditional release of the Indemnifying
Party from all liabilities with respect to such Claim or judgment or contain any admission of
wrongdoing.

       

                    (d)Contribution.  If
the indemnification provided for in this Section 4.5 is unavailable to or
insufficient to hold harmless an Indemnified Party in respect of any losses,
claims, damages or liabilities (or actions in respect thereof) referred to
therein, then each Indemnifying Party shall contribute to the amount paid or
payable by such Indemnified Party as a result of such losses, claims, damages or
liabilities (or actions in respect thereof) in such proportion as is appropriate
to reflect the relative fault of the Indemnifying Party and the Indemnified
Party in connection with the statements or omissions or alleged statements or omissions which resulted
in such losses, claims, damages or liabilities (or actions in respect thereof),
as well as any other relevant equitable considerations.  The relative
fault of such Indemnifying Party and Indemnified Party shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or omission or alleged omission to state a material fact
relates to information supplied by such Indemnifying Party or by such
Indemnified Party, and the parties’ relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission.  The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 4.5(d) were determined
by pro rata allocation (even if the Investors or any underwriters were treated
as one entity for such purpose) or by any other method of allocation which does
not take account of the equitable considerations referred to in this
Section 4.5(d).  The amount paid or payable by an Indemnified
Party as a result of the losses, claims, damages or liabilities (or actions in
respect thereof) referred to above shall be deemed to include any legal or other
fees or expenses reasonably incurred by such Indemnified Party in connection
with investigating or defending any such action or claim.  No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f)
of the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.

      
        
           

        

        
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                    (e)Limitation
on Investors’ and Underwriters’ Obligations.  Notwithstanding
any other provision of this Section 4.5, in no event shall (i) the
Investor have any liability under this
Section 4.5 for any amounts in excess of the dollar amount of the proceeds
actually received by the Investors from the
sale of Registrable Securities (after deducting any fees, discounts and
commissions applicable thereto) pursuant to any Registration Statement under
which such Registrable Securities are registered under the Securities Act and
(ii) any underwriter be required to undertake liability to any Person
hereunder for any amounts in excess of the aggregate discount, commission or
other compensation payable to such underwriter with respect to the Registrable
Securities underwritten by it and distributed pursuant to the Registration
Statement.

       

                    (f)Other
Liabilities.  The obligations of the Company under this
Section 4.5 shall be in addition to any liability which the Company may
otherwise have to any Indemnified Person and the obligations of any Indemnified
Person under this Section 4.5 shall be in addition to any liability which
such Indemnified Person may otherwise have to the Company.  The
remedies provided in this Section 4.5 are not exclusive and shall not limit any
rights or remedies which may otherwise be available to an indemnified party at
law or in equity.

       

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

       

      Section 4.7.Common
Stock Issued Upon Stock Split, etc.  The provisions of this Article 4 shall
apply to any shares of Common Stock or any other securities issued as a dividend
or distribution in respect of the Conversion Shares or the Warrant
Shares.

      

      ARTICLE
5

       

      Other Agreements of the
Parties

      

      Section 5.1.  Certificates;
Legends.

      

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

      
        
           

        

        
          21

          
            

          

        

        
           

        

      

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

      

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

      

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

      
        
           

        

        
          22

          
            

          

        

        
           

        

      

      Section 5.3.  Securities
Laws Disclosure; Publicity.  No later than the
fourth business day following the execution of this Agreement, the Company will
file a Current Report on Form 8-K disclosing the material terms of the
Transaction Documents (and attach the Transaction Documents as exhibits
thereto). In addition, the Company will make such other filings and notices in
the manner and time required by the Commission and the Trading Market on which
the Common Stock is listed.

      

      Section
5.4.  Use of
Proceeds.  The Company shall
use the net proceeds from the sale of the Securities hereunder (i) for working
capital purposes (including the repayment of debt), (ii) to purchase fixed
assets used in the development or production of the Company’s products or (iii)
for investment in new technologies related to the Company’s
business.

      

      Section
5.5.  Right of
First Refusal

       

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

       

      (b)  Investment
Terms.  The terms on
which the Investor shall purchase securities pursuant to the Proposed Financing
shall be the same as such securities are purchased by other investors in such
Proposed Financing.  The Company shall give the Investor written
notice, no later than the date of the initial closing of the Proposed Financing,
setting forth the terms of the Proposed Financing (the “Financing
Notice”).  In the event that the terms of the Proposed
Financing are changed, the Borrower shall provide the Investor with the same
notice of the revised terms that are provided to the other investors in such
Proposed Financing.

       

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

      

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

      
        
           

        

        
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      ARTICLE
6

      

      Conditions Precedent to
Closing

      

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

      

      
        	
                 
      

              	
                (a)

              	
                Representations
      and Warranties. The Company shall have
      delivered a certificate of the Company’s Chief Executive Officer
      certifying that the representations and warranties of the Company
      contained herein are true and correct in all material respects as of the
      date when made and as of the Closing Date as though made on and as of such
      Closing Date;

              

      

      

      
        	
                 
      

              	
                (b)

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

              

      

      

      
        	
                 
      

              	
                (c)

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

              

      

      

      
        	
                 
      

              	
                (d)

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

              

      

      

      
        	
                 
      

              	
                (e)

              	
                Company
      Deliverables. The Company shall have
      delivered the Notes and the
Warrants.

              

      

      

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

      

      
        	
                 
      

              	
                (a)

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

              

      

      

      
        	
                 
      

              	
                (b)

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

              

      

      

      
        	
                 
      

              	
                (c)

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

              

      

      

      
        	
                 
      

              	
                (d)

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

              

      

      
        
           

        

        
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      ARTICLE
7

      

      Miscellaneous

      

      Section 7.1.  Fees and
Expenses.  Each party shall
pay the fees and expenses of its advisers, counsel, accountants and other
experts, if any, and all other expenses incurred by such party incident to the
negotiation, preparation, execution, delivery and performance of the Transaction
Documents. The Company shall pay all stamp and other taxes and duties levied in
connection with the sale of the Shares.

      

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

      

      Section 7.3.  Notices.  Any and all
notices or other communications or deliveries required or permitted to be
provided hereunder shall be in writing and shall be deemed given and effective
on the earliest of (a) the date of transmission, if such notice or communication
is delivered via facsimile (provided the sender receives a machine-generated
confirmation of successful transmission) at the facsimile number specified in
this Section prior to 6:30 p.m. (Little Rock time) on a Business Day, (b) the
next Business Day after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number specified in
this Section on a day that is not a Business Day or later than 6:30 p.m. (Little
Rock time) on any Business Day, (c) the Business Day following the date of
transmission, if sent by a nationally recognized overnight courier service, or
(d) upon actual receipt by the party to whom such notice is required to be
given. The address for such notices and communications shall be as
follows:

      

      If to the
Company:             ThermoEnergy
Corporation

      Attn.:  Andrew T.
Melton

      124 West Capitol Avenue, Suite
880

      Little Rock,
AR  72201

      Facsimile:  (501)
376-5249

      

      With a
copy
to:                   Nixon
Peabody, LLP

      Attn.:  William E. Kelly,
Esq.

      100 Summer Street

      Boston,
MA  02110

      Facsimile:  (866)
743-4899

      

      
        If to an
Investor:                 To such
Investor at:

      

      One
Gorham Island, Suite 201

      Westport,
CT 06880

      Facsimile:  (203)
454-1539

      

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

      

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

      
        
           

        

        
          25

          
            

          

        

        
           

        

      

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

      

      
        	
                 
      

              	
                (a)

              	
                by
      written agreement of the Investors and the Company;
  or

              

      

      

      
        	
                 
      

              	
                (b)

              	
                by
      the Company or the Investor, upon written notice to the other, if the
      Closing shall not have taken place by 6:30 p.m., Little Rock time, on
      April 30, 2009; provided, that
      the right to terminate this Agreement under this Section 7.5(b) shall not
      be available to any Person whose failure to comply with its obligations
      under this Agreement has been the cause of or resulted in the failure of
      the Closing to occur on or before such time, to the extent such delay is
      caused by such Person.

              

      

      

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

      

      Section 7.6.  Construction.  The headings
herein are for convenience only, do not constitute a part of this Agreement and
shall not be deemed to limit or affect any of the provisions hereof. The
language used in this Agreement will be deemed to be the language chosen by the
parties to express their mutual intent, and no rules of strict construction will
be applied against any party. This Agreement shall be construed as if drafted
jointly by the parties, and no presumption or burden of proof shall arise
favoring or disfavoring any party by virtue of the authorship of any provisions
of this Agreement or any of the Transaction Documents.

      

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

      

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

      

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

      
        
           

        

        
          26

          
            

          

        

        
           

        

      

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

      

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

      

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

      

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

      

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

      

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

      

      [Signature Page
Follows]

      
        
           

        

        
          27

          
            

          

        

        
           

        

      

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

      

      
        
          
            
              
                
                  
                    	
                            ThermoEnergy
      Corporation

                          	 	 
      
	 
      	 	
                            Empire
      Capital Partners, lp

                          
	 
      	 	
                            By: Empire
      gp, llc, its General Partner

                          
	 
      	 	 
      
	
                            By:

                          	
                            /s/  Andrew T.
    Melton

                          	 	 
      
	 
      	
                            Andrew
      T. Melton

                          	 	
                            By:

                          	
                            /s/  Peter J.
      Richards

                          
	 
      	
                            Senior
      Vice President and CFO

                          	 	 
      	
                            Peter
      J. Richards

                          
	 
      	 	 
      	
                            Managing
      Member

                          
	 
      	 	 
      
	 
      	 	
                            Empire
      Capital Partners, ltd

                          
	 
      	 	
                            By: Empire
      Capital Management, llc,

                          
	 
      	 	
                            its
      Investment Manager

                          
	 
      	 	 
      
	
                            /s/  Scott A.
Fine

                          	 	 
      
	
                            Scott
      A. Fine

                          	 	
                            By:

                          	
                            /s/  Peter J.
      Richards

                          
	 
      	 	 
      	
                            Peter
      J. Richards

                          
	 
      	 	 
      	
                            Managing
      Member

                          
	 
      	 	 
      
	 
      	 	
                            Empire
      Capital Partners Enhanced Master 

                            Fund,
      ltd

                          
	 
      	 	
                            By:
      Empire
      Capital Management, llc,

                          
	 
      	 	
                            its
      Investment Manager

                          
	 
      	 	 
      
	
                            /s/  Peter J.
      Richards

                          	 	 
      
	
                            Peter
      J. Richards

                          	 	
                            By:

                          	
                            /s/  Peter J.
      Richards

                          
	 
      	 	 
      	
                            Peter
      J. Richards

                          
	 
      	 	 
      	
                            Managing
      Member

                          

                  

                

              

            

          

        

      

      
        
           

        

        
          28

          
            

          

        

        
           

        

      

      Schedule
I

      

      
        
          
            
              
                
                  
                    
                      
                        
                          
                            
                              
                                
                                  
                                    
                                      
                                        
                                          
                                            
                                              	
                                                      Investor

                                                    	 	
                                                      Purchase
      Price

                                                    	 
	
                                                      Empire
      Capital Partners, LP

                                                    	 	$	100,000	 
	
                                                      One
      Gorham Island, Suite 201

                                                    	 	 	 	 
	
                                                      Westport,
      CT 06880

                                                    	 	 	 	 
	
                                                      Facsimile:  (203)
      454-1539

                                                    	 	 	 	 
	 
      	 	 	 	 
	
                                                      Empire
      Capital Partners, Ltd

                                                    	 	$	100,000	 
	
                                                      One
      Gorham Island, Suite 201

                                                    	 	 	 	 
	
                                                      Westport,
      CT 06880

                                                    	 	 	 	 
	
                                                      Facsimile:  (203)
      454-1539

                                                    	 	 	 	 
	 
      	 	 	 	 
	
                                                      Empire
      Capital Partners Enhanced Master Fund, Ltd

                                                    	 	$	100,000	 
	
                                                      One
      Gorham Island, Suite 201

                                                    	 	 	 	 
	
                                                      Westport,
      CT 06880

                                                    	 	 	 	 
	
                                                      Facsimile:  (203)
      454-1539

                                                    	 	 	 	 
	 
      	 	 	 	 
	
                                                      Scott
      A. Fine

                                                    	 	$	100,000	 
	
                                                      One
      Gorham Island, Suite 201

                                                    	 	 	 	 
	
                                                      Westport,
      CT 06880

                                                    	 	 	 	 
	
                                                      Facsimile:  (203)
      454-1539

                                                    	 	 	 	 
	 
      	 	 	 	 
	
                                                      Peter
      J. Richards

                                                    	 	$	100,000	 
	
                                                      One
      Gorham Island, Suite 201

                                                    	 	 	 	 
	
                                                      Westport,
      CT 06880

                                                    	 	 	 	 
	
                                                      Facsimile:  (203)
      454-1539

                                                    	 	 	 	 

                                            

                                          

                                        

                                      

                                    

                                  

                                

                              

                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

      
        
           

        

        
          29

          
            

          

        

        
           

        

      

      Exhibit
C

      

      Plan
of Distribution

      

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

      

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

      

      - ordinary brokerage transactions and
transactions in which the broker-dealer solicits purchasers;

      

      - block trades in which the
broker-dealer will attempt to sell the shares as agent, but may position and
resell a portion of the block as principal to facilitate the
transaction;

      

      - purchases by a broker-dealer as
principal and resale by the broker-dealer for its account;

      

      - an exchange distribution in
accordance with the rules of the applicable exchange;

      

      - privately negotiated
transactions;

      

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

      

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

      

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

      

      - a combination of any such methods of
sale.

      

      The selling stockholders may, from time
to time, pledge or grant a security interest in some or all of the shares of
common stock owned by them and, if they default in the performance of their
secured obligations, the pledgees or secured parties may offer and sell the
shares of common stock, from time to time, under this prospectus, or under an
amendment to this prospectus under Rule 424(b)(3) or other applicable provision
of the Securities Act amending the list of selling stockholders to include the
pledgee, transferee or other successors in interest as selling stockholders
under this prospectus.  The selling stockholders also may transfer the
shares of common stock in other circumstances, in which case the transferees,
pledgees or other successors in interest will be the selling beneficial owners
for purposes of this prospectus.

      

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

      
        
           

        

        
          30

          
            

          

        

        
           

        

      

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

      

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

      

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

      

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

      

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

      

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

      

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

      

      We have agreed with the selling
stockholders to keep the registration statement of which this prospectus
constitutes a part effective until the earlier of (1) such time as all of the
shares covered by this prospectus have been disposed of pursuant to and in
accordance with the registration statement or (2) the date on which the shares
may be sold without restriction pursuant to Rule 144 of the Securities
Act.

      
        
           

        

        
          31

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