Document:

ICP Solar Technologies, Inc.: Exibit 10.1 - Prepared by TNT Filings Inc.

  

Exhibit 10.1

LINE OF CREDIT AGREEMENT

LINE OF CREDIT AGREEMENT ("Agreement,"), dated as of October 8, 2009, by and among ICP Solar Technologies, Inc., a Nevada corporation, ("Company"), and each buyer listed on the Schedule of Buyers attached hereto that has executed this Agreement (each, including its successors and assigns, a “Buyer” and collectively the “Buyers”).  Buyers may include only parties that were among the Initial Buyers (as defined below).

WHEREAS:  

 A.       

The Company, BridgePointe Master Fund Ltd., Platinum Long Term Growth VI, LLC and Gemini Master Fund, Ltd. (“Initial Buyers”) previously entered into a Securities Purchase Agreement (“2008 Securities Purchase Agreement”) and other transaction documents dated June 13, 2008, which were subsequently amended on December 31, 2008 and on September 17, 2009 (“Initial Transaction Documents”), pursuant to which the Company issued to the Buyers 11% Senior Secured Convertible Debentures Due June 13, 2010 (the “2008 Debentures”), on or about June 13, 2008, in the amounts specified in the Initial Transaction Documents;

B.

The Company and the Buyer are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by Rule 506 under Regulation D ("Regulation D") as promulgated by the United States Securities and Exchange Commission (the “Commission” or the "SEC") under the Securities Act of 1933, as amended (the "1933 Act");

C.

The Buyers and the Company have agreed that the Buyers, at their option, may make advances and extend credit to the Company under the Grid Note pursuant to the terms hereof, up to a maximum aggregate Principal Amount (after accounting for the Original Issue Discount) of $888,000 (the “Maximum Aggregate Principal Amount”), in the aggregate (which equates to a $800,000 of Advances), and each Buyer shall be entitled to purchase its Pro-Rata Percentage (as set forth next to such Buyer’s name in the Schedule of Buyers attached hereto) of the Maximum Aggregate Principal Amount (collectively, the “Offering”);
 

D.

The terms of the Grid Notes, including the terms on which the Grid Notes may be converted into common stock, par value $0.00001 per share, of the Company (“Common Stock”), are set forth in the Grid Note, in the form attached hereto as Exhibit A;

E.    

The Initial Parties agree that the Grid Notes will rank pari passu to the debentures issued pursuant to the Initial Transaction Documents (“June 2008 Debentures”) and will thus, along with the June 2008 Debentures, rank senior to all outstanding and future indebtedness of the Company, guaranteed by each of the Company's Active Subsidiaries pursuant to the subsidiary guarantee attached hereto as Exhibit E-1 (the "Subsidiary Guarantee"), and secured by a first priority, perfected security interest in certain of the assets of the Company and the stock and certain of the assets of each of the Company's subsidiaries, as evidenced by the security agreement attached hereto as Exhibit E-2 (the "Security Agreement")
 

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F.

The Grid Notes will be guaranteed by each of the Company's subsidiaries pursuant to the subsidiary guarantee attached hereto as Exhibit B-1 (the "Subsidiary Guarantee"), and be secured as evidenced by the security agreement attached hereto as Exhibit B-2 (the "Security Agreement") and the intellectual property security agreement attached hereto as Exhibit B-3 (the “Intellectual Property Security Agreement”).

         NOW THEREFORE, the Company and the Buyer, severally and not jointly, hereby agree as follows:

1.       

PURCHASE AND SALE OF GRID NOTES.

(a)  

Certain Definitions.  The Company and the Buyer mutually agree to the terms of each of the Transaction Documents.  For purposes hereof:

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

"Approved Stock Plan" means any employee benefit plan which has been duly adopted by the Board of Directors of the Company or a majority of the members of a committee of non-employee directors established for such purpose, pursuant to which the Company's securities may be issued to any employee, consultant, officer or director for services provided to the Company; provided, however, that no more than an aggregate of 2,000,000 shares of Common Stock Equivalents may be issued in connections with all Approved Stock Plans.

“Active Subsidiaries” shall mean all of the Company’s Subsidiaries, other than the Inactive Subsidiaries.

"Business Day"  
shall mean any day other than a Saturday, Sunday or a day on which commercial banks in the City of New York, New York are authorized or required by law or executive order to remain closed.

“Closing Bring-Down Certificate” shall have the meaning set forth in Section 3(c) below.

“Closing Certificate” shall have the meaning set forth in Section 1(b)(iv)(B) below.

“Collateral” shall have the meaning ascribed to it in the Security Agreement.

“Common Stock” shall have the meaning set forth in Recital “B” above.

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

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“Conversion Shares” shall have the meaning set forth in Section 2(a) below.

“Convertible Securities” shall have the meaning ascribed to it in the Grid Note.

“Designated Insiders” shall have the meaning set forth in Section 4(n) below.

 "Eligible Market" means the over the counter Bulletin Board (“OTC-BB”), the New York Stock Exchange, Inc., the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market or the American Stock Exchange.

 “Exempt Issuance” means the issuance of (a) any Common Stock or options issued or issuable in connection with any Approved Stock Plan at a price equal to or greater than the initial Conversion Price (as defined in the Grid Note), up to a maximum of five percent (5%) of the outstanding Common Stock, in the aggregate (provided that no such options shall be issued to consultants or advisors unless such options are not registered, either at the time of issuance or at any time thereafter, and are subject to volume limitations under Rule 144).

“Grid Note” shall mean the Senior Secured Grid Note Due October 1, 2010 issued to the Buyers pursuant to this Agreement.

“Indebtedness” of any Person means, without duplication (A) all indebtedness for borrowed money, (B) all obligations issued, undertaken or assumed as the deferred purchase price of property or services including (without limitation) “Capital Leases” in accordance with generally accepted accounting principles (other than trade payables entered into in the ordinary course of business, consistent with prior practice), (C) all reimbursement or payment obligations with respect to letters of credit, surety bonds and other similar instruments, (D) all obligations evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced incurred in connection with the acquisition of property, assets or businesses, (E) all indebtedness created or arising under any conditional sale or other title retention agreement, or incurred as financing, in either case with respect to any property or assets acquired with the proceeds of such indebtedness (even though the rights and remedies of the seller or bank under such agreement in the event of default are limited to repossession or sale of such property), (F) all monetary obligations under any leasing or similar arrangement which, in connection with generally accepted accounting principles, consistently applied for the periods covered thereby, is classified as a capital lease, (G) all indebtedness referred to in clauses (A) through (F) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any mortgage, lien, pledge, charge, security interest or other encumbrance upon or in any property or assets (including accounts and contract rights) owned by any Person, even though the Person which owns such assets or property has not assumed or become liable for the payment of such indebtedness, and (H) all Contingent Obligations in respect of indebtedness or obligations of others of the kinds referred to in clauses (A) through (G) above; and (y) "Contingent Obligation" means, as to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to any indebtedness, lease, dividend or other obligation of another Person if the primary purpose or intent of the Person incurring such liability, or the primary effect thereof, is to provide assurance to the obligee of such liability that such liability will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such liability will be protected (in whole or in part) against loss with respect thereto.

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“Inactive Subsidiaries” shall mean ICP Asia Ltd., a Hong Kong corporation, and ICP Global Tech PTY Ltd., an Australian corporation.

“Intellectual Property” shall have the meaning set forth in Section 3(j) below.

“Intellectual Property Security Agreement” shall have the meaning ascribed to it in Recital “E” above.

“Intellectual Property Rights” shall have the meaning set forth in Section 3(j) below.

 “Legend Removal Date” shall have the meaning set forth in Section 6(a).

“Lien” shall have the meaning set forth in Section 5 below.

“Limited Standstill Agreements” shall have the meaning set forth in Section 4(n) below.

"Market Price," for any security as of any date, shall have the meaning ascribed to it in the applicable security.

“Material Adverse Effect” shall have the meaning set forth in Section 3(a) below.

 “Officer’s Certificate” shall have the meaning set forth in Section 8(c) below.

“Ongoing Share Reservation Requirement” shall have the meaning set forth in Section 4(e) below.

“Options” shall have the meaning ascribed to it in the Grid Note.

“Patents” shall have the meaning set forth in Section 3(j) below.
 

“Payment Shares” shall mean (i) Default Shares (as defined in the Grid Note), (ii) shares issuable upon conversion of Liquidated Damages (as defined in the Grid Note) and other Required Cash Payments (as each is defined in the Grid Note) into Common Stock of the Company.  The Payment Shares shall be treated as Common Stock issuable upon conversion of the Grid Notes for all purposes hereof and thereof and shall be subject to all of the limitations and afforded all of the rights of the other shares of Common Stock issuable hereunder or thereunder.  

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“Permitted Liens”  
shall mean: (i) Liens on equipment purchased in the ordinary course of business, consistent with prior practice (ii) Liens subordinate to those created by this Agreement as long as the lienholder enters into a subordination agreement acceptable to the Buyers in their reasonable discretion, (iii) landlords', carriers', warehousemen's, mechanics' and other similar Liens arising by operation of law in the ordinary course of the Company's business; provided, however, that all such Liens shall be discharged or bonded off within sixty (60) days from the filing thereof; and (iv) Liens for taxes (excluding any Lien imposed pursuant to any provision of ERISA) not yet due or which are being contested in good faith by appropriate proceedings and the Company maintains appropriate reserves in respect thereto provided that in Buyer's judgment such Lien does not adversely affect Buyer's rights or the priority of Buyer's Lien in the Collateral.

“Person” shall mean an individual, a limited liability company, a partnership, a joint venture, an exempted company, a corporation, a trust, an unincorporated organization and a government or any department or agency thereof.

 “Principal Market” shall have the meaning set forth in Section 4(g) below.

“Purchase Price” shall have the meaning set forth in Section 1(b)(ii) below.

“Required Holders” shall have the meaning ascribed to it in the Grid Note.

“Security Agreement” shall have the meaning ascribed to it in Recital “E” above.

“SEC Documents” shall have the meaning set forth in Section 3(g) below.

“Securities” shall have the meaning set forth in Section 2(a) below.

“Security Documents” shall mean the Security Agreement, the form of Subsidiary Guarantee, the Intellectual Property Security Agreement and any other documents and filing required thereunder in order to grant the Buyers a first priority security interest in the assets of the Company and the Subsidiaries as provided in the Security Agreement, including but not limited to all UCC-1 filing receipts and documentation evidencing filing of liens with the United States Patent and Trademark Office.  

 “Subsidiaries” shall have the meaning set forth in Section 3(a) below.

"Trading Day" shall mean any day on which the Common Sock is traded for any period on the Principal Market, or on the principal securities exchange or other securities market on which the Common Stock is then being traded.  

“Trading Market” means the Eligible Market on which the Common Stock is listed or quoted for trading on the date in question.

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“Transaction Documents”  
shall mean this Line of Credit Agreement, the Grid Note, the Security Documents, and any other agreements delivered together with this Agreement or in connection herewith.

“Underlying Shares” means the shares of Common Stock issued and issuable upon conversion or redemption of the Grid Notes or as Payment Shares.
 

“Variable Equity Securities” shall have the meaning set forth in Section 4(d)(ii) below.

“VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time); (b) if the Common Stock is not then listed or quoted for trading on a Trading Market and if prices for the Common Stock are then reported in the “Pink Sheets” published by Pink Sheets, LLC (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported; or (c) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Buyers of a majority in interest of the Securities then outstanding and reasonably acceptable to the Company.

(b)   

Closing of Purchase of Grid Notes 
Subject to the satisfaction or waiver of the terms and conditions of this Agreement, on each Closing Date (as defined below), the Company shall issue and sell to each Buyer and each Buyer, severally and not jointly, in its sole discretion may elect to purchase from the Company Grid Notes in the principal amount in any amount up to its Pro-Rata Percentage (as set forth next to such Buyer’s name in the Schedule of Buyers attached hereto) of the Maximum Aggregate Principal Amount, each at the Purchase Price (as defined below).

(i) 

 Line of Credit. Buyers hereby establishes for a period extending

from the date hereof until April 1, 2010 (the "Last Closing Date"), which period may be extended only upon the written approval of 100% of the Buyers, a
discretionary line of credit (the "Credit Line") for and on behalf of the Company which equals up to eight hundred thousand U.S. dollars (U.S. $800,000) in aggregate Advanced funds for all Buyers combined (“Maximum Credit Limit”).  In connection herewith, upon the first Advance (as defined below) from each Buyer, the Company shall execute and deliver to
each Buyer a Grid Note in the Principal Amount corresponding to the Advance, in the form attached hereto as Exhibit "A".  All sums advanced (“Advanced”) on the Credit Line pursuant to the terms of this Agreement (each an "Advance") shall increase the principal amount of
each Buyer's Grid Note by an amount (the “Principal Amount”) equal to the amount Advanced divided by 0.9009, which represents the Original Issue Discount (as defined below).   Each Buyer is under no obligation to Advance any funds under the Credit Line and may chose to Advance, or not to Advance funds to the Company under the Credit Line, in
each Buyer’s sole discretion. 
For the avoidance of doubt and notwithstanding anything to the contrary
contained herein, no Buyer shall have any obligation whatsoever to make an
Advance. 

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(ii) 

 Form of Grid Note.  The Grid Note shall be in the form annexed hereto as Exhibit A.

(iii) 

 Form of Payment.  The purchase price for each Grid Note to be purchased by each Buyer at the Closing (the "Purchase Price") shall be $ 0.9009 for each $1.00 of principal amount of Grid Notes to be purchased by such Buyer at the Closing, representing an original issue discount (the “Original Issue Discount”).  On or before each Closing Date (as defined below), (A) the Buyer shall pay the Purchase Price for the Grid Notes that the Buyer, in its sole discretion, has elected to have issued and sold to it, by wire transfer of immediately available funds to the Company, in accordance with the Company's written wiring instructions, against delivery of a duly executed Grid Note having an aggregate principal amount (the “Principal Amount”) equal to the Purchase Price divided by 0.9009 (to account for the Original Issue Discount) and, and (B) the Company shall deliver such Grid Notes duly executed on behalf of the Company, to the Buyer, against delivery of any portion of the Purchase Price.   In the case of subsequent Closings with respect to a given Buyer after that Buyer’s first Closing, the additional amount Advanced and the resultant additional Principal Amount shall be added to the chart at the end of the Grid Note and such additional Principal Amount shall be added to the principal amount of the Grid Note.

 (iv) 

 Closing Date; Closing Deadline.  Anytime after the date hereof until the Last Closing Deadline (as defined below), each Buyer may in its sole discretion, but is under no obligation to, purchase any amount of Grid Notes up to an amount such that, following such purchase, the aggregate Principal Amount of Grid Notes held by such Buyer does not exceed Buyer’s Maximum Principal Amount, as defined below. Subject to the satisfaction or waiver of the terms and conditions of this Agreement, the "Closing" with respect to a Buyer shall occur when subscriber funds representing the aggregate Purchase Price of the Grid Note being purchased by such Buyer are transmitted by wire transfer of immediately available funds by each Buyer to the Company, assuming that the Transaction Documents are signed by both parties prior to or within three (3) Business Days following such transmission.  The date of the Closing shall be referred to herein as the “Closing Date.”  Unless otherwise mutually agreed by the parties, the last Closing hereunder shall occur not later than April 1, 2010 (the “Last Closing Deadline”). Each Closing contemplated by this Agreement shall occur on the applicable Closing Date at the offices of the Company, or at such other location as may be agreed to by the parties. For purposes hereof, “Buyer’s Maximum Principal Amount” shall mean the Buyer’s Pro Rata Percentage (as set forth next to such Buyer’s name in the Schedule of Buyers attached hereto) of the Maximum Aggregate Principal Amount.  Upon the written assignment from one Buyer to another Buyer of its right to purchase Grid Notes, such other Buyer shall be entitled to purchase additional Grid Notes equal to the amount that the assigning Buyer would have been entitled to purchase hereunder.

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(v) 

 Closing Deliveries.  Closing deliveries required hereunder shall be made to the Buyer pursuant to Section 1(d) below. On the Closing Date, the Company will deliver or cause to be delivered to each Buyer (the “Company Documents”):

(A) 

the items required to be delivered to Buyer
pursuant to   Section 8, duly executed by the Company where so required,

(B)  

a certificate ("Closing Certificate") signed by its chief executive officer or chief financial officer (1) representing the truth and accuracy of all the representations and warranties made by the Company contained in this Agreement, as of the applicable Closing Date, as if such representations and warranties were made and given on all such dates, (2) adopting the covenants and conditions set forth in this Agreement in relation to the applicable Grid Note, and (3) certifying that an Event of Default has not occurred,

(C) 

a duly executed Grid Note in the Principal Amount,
registered in the name of such Buyer, provided that, in the case of multiple
Closings with one Buyer, subsequent Advances after the first Advance shall be
evidenced on the table at the end of the Grid Note, and signed by the Company;

(D)  

Limited Standstill Agreement, duly executed by Sass Peress (as defined in Section 4(n)),

On the Closing Date, each Buyer shall deliver or cause to be delivered to the Company the following (the “Buyer Documents”):

(A) 

this Line of Credit Agreement duly executed by
such Buyer (as to the first Closing only), and

(B) 

the applicable Purchase Price for the amount of
Grid Notes that the Buyer elects to purchase, by wire transfer to the account as
specified in writing by the Company (in the case of the Lead Investor, subject
to offsets for the Lead Investor Fee).

2.       

BUYER’S REPRESENTATIONS AND WARRANTIES. The Buyer represents and warrants to the Company solely as to such Buyer that:

(a)  

Investment Purpose. As of the date hereof, the Buyer is purchasing the Grid Note and the shares of Common Stock issuable upon conversion of the Grid Note or otherwise pursuant to the Grid Note and the other Transaction Documents (including, without limitation, the Payment Shares) (such shares of Common Stock being collectively referred to herein as the “Conversion Shares") for its own account and not with a present view towards the public sale or distribution thereof, except pursuant to sales registered or exempted from registration under the 1933 Act; PROVIDED, HOWEVER, that by making the representations herein, the Buyer does not agree to hold any of the Securities for any minimum or other specific term and reserves the right to dispose of the Securities at any time in accordance with or pursuant to a registration statement or an exemption under the 1933 Act and applicable state securities laws.  

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(b)   

Accredited Investor Status. The Buyer is an "accredited investor" as that term is defined in Rule 501(a) of Regulation D promulgated under the 1933 Act (an "Accredited Investor").  

(c)   

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

(d)   

Information. The Buyer and its advisors, if any, have been furnished with all materials relating to the business, finances and operations of the Company and materials relating to the offer and sale of the Securities which have been requested by the Buyer or its advisors. The Buyer and its advisors, if any, have been afforded the opportunity to ask questions of the Company. Neither such inquiries nor any other due diligence investigation conducted by Buyer or any of its advisors or representatives shall modify, amend or affect Buyer's right to rely on the Company's representations and warranties contained in Section 3 below. The Buyer understands that its investment in the Securities involves a significant degree of risk.

(e)    

Transfer Or Re-Sale. The Buyer understands that the sale or re-sale of the Securities has not been and is not being registered under the 1933 Act or any applicable state securities laws, and the Securities may not be transferred or resold unless (a) the Buyer shall have delivered to the Company an opinion of counsel (which opinion shall be in form, substance and scope reasonably satisfactory to counsel to the Company) to the effect that the Securities to be sold or transferred may be sold or transferred pursuant to an exemption from such registration, (b) the Securities are sold or transferred to an "affiliate" (as defined in Rule 144 promulgated under the 1933 Act (or a successor rule) ("Rule 144") of the Buyer who agrees to sell or otherwise transfer the Securities only in accordance with this Section 2(e) and who is an Accredited Investor, or (c) the Securities are sold pursuant to Rule 144 or Rule 144; and  any sale of such Securities made in reliance on Rule 144 or Rule 144 may be made only in accordance with the terms of said Rule. Notwithstanding the foregoing or anything else contained herein to the contrary, the Securities may be pledged as collateral in connection with a bona fide margin account or other lending arrangement.

(f)    

Organization; Authorization; Enforcement. Buyer is a duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is organized.  Buyer has all requisite power and authority to enter into and perform this Agreement and the other Transaction Documents to which Buyer is a signatory and to consummate the transactions contemplated hereby and thereby in accordance with the terms hereof and thereof.  The execution and delivery of this Agreement and the other Transaction Documents to which Buyer is a signatory have been duly and validly authorized and no further consent or authorization of Buyer, its manager or members is required. This Agreement has been duly executed and delivered on behalf of the Buyer, and this Agreement constitutes, and upon execution and delivery by the Buyer of the other Transaction Documents to which Buyer is a signatory, such agreements will constitute, legal, valid and binding agreements of the Buyer enforceable in accordance with their terms except (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.

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(g)    

Residency.  
The Buyer’s residency is as indicated on its signature page hereto.
 

(h)   

Knowledge And Experience.  Buyer has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of the investment in the Securities.

(i)    

Short Sales Prior To The Date Hereof.   Buyer and its Affiliates have not from the time that such Buyer first received a term sheet (written or oral) from the Company or any other person setting forth the material terms of the transactions contemplated hereunder until the date hereof entered into or effected, or attempted to induce any third party to enter into or effect, any short sales of the Common Stock, or any hedging transaction which establishes a net short position with respect to the Common Stock.  

 (j)   

Independent Investment Decision.  Such Buyer has independently evaluated the merits of its decision to purchase the Securities pursuant to the Transaction Documents, and such Buyer confirms that it has not relied on the advice of any other Buyer's business and/or legal counsel in making such decision.  

3.  

REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants to each Buyer that, except as set forth on the Company’s disclosure schedules referred to herein and attached hereto or any update thereto prior to the Closing Date (collectively, the “Disclosure Schedules”):

(a)   

Organization And Qualification. The Company and each of its Active Subsidiaries (as defined below), if any, is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is incorporated, with full power and authority (corporate and other) to own, lease, use and operate its properties and to carry on its business as and where now owned, leased, used, operated and conducted.  Schedule 3(a) sets forth a list of all of the Subsidiaries of the Company, their principal corporate address, and the jurisdiction in which each is incorporated. The Company and each of its Active Subsidiaries is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which its ownership or use of property or the nature of the business conducted by it makes such qualification necessary except where the failure to be so qualified or in good standing would not have a Material Adverse Effect. "Material Adverse Effect" means any material adverse effect on (i) the Securities, (ii) the business, operations, assets, financial condition or prospects of the Company and its Active Subsidiaries, if any, taken as a whole, (iii) on the transactions contemplated hereby or by the agreements or instruments to be entered into in connection herewith or (iv) the authority or the ability of the Company to perform its obligations under this Agreement or the Grid Note. "Subsidiaries" means any corporation or other organization, whether incorporated or unincorporated, in which the Company owns, directly or indirectly, any equity or other ownership interest.  Neither of the Inactive Subsidiaries currently has any assets.

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(b)  

Authorization; Enforcement. (i) The Company has all requisite corporate power and authority to enter into and perform this Agreement, the Security Documents, and the Grid Note and to consummate the transactions contemplated hereby and thereby and to issue the Securities, in accordance with the terms hereof and thereof, (ii) except as otherwise set forth in Schedule 3(b), the execution and delivery of this Agreement, the Security Documents and  the Grid Note by the Company and the consummation by it of the transactions contemplated hereby and thereby (including without limitation, the issuance of the Grid Note and the issuance and reservation for issuance of the Conversion Shares issuable upon conversion of or otherwise pursuant to the Grid Note have been duly authorized by the Company's Board of Directors and no further consent or authorization of the Company, its Board of Directors, or its stockholders is required, (iii) this Agreement has been duly executed and delivered by the Company, and (iv) this Agreement constitutes, and upon execution and delivery by the Company of the Security Documents and  the Grid Note, each of such agreements and instruments will constitute, a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.
 

(c)    

Capitalization.  As of the date hereof, the authorized capital stock of the Company consists of 200,000,000 shares of Common Stock, of which approximately 43,706,615 shares are outstanding as of the date hereof and 100,000,000 shares of preferred stock, par value $0.00001 per share, of which none are outstanding as of the date hereof.  There are no outstanding securities which are convertible into shares of Common Stock, whether such conversion is currently exercisable or exercisable only upon some future date or the occurrence of some event in the future, except as disclosed on Schedule 3(c-1).  If any such securities are listed on the Schedule 3(c-1), the number or amount of each such outstanding convertible security and the conversion terms are set forth in said Schedule 3(c-1).  All of such outstanding shares of capital stock set forth in Schedule 3(c-1) are, or upon issuance will be, duly authorized, validly issued, fully paid and nonassessable.

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No shares of capital stock of the Company are subject to preemptive rights or any other similar rights of the stockholders of the Company or any liens or encumbrances imposed through the actions or failure to act of the Company. Except as disclosed in Schedule 3(c-2), as of the effective date of this Agreement, (i) there are no outstanding options, warrants, scrip, rights to subscribe for, puts, calls, rights of first refusal, agreements, understandings, claims or other commitments or rights of any character whatsoever relating to, or securities or rights convertible into or exercisable or exchangeable for any shares of capital stock of the Company or any of its Subsidiaries, or arrangements by which the Company or any of its Subsidiaries is or may become bound to issue additional shares of capital stock of the Company or any of its Subsidiaries, (ii) there are no agreements or arrangements under which the Company or any of its Subsidiaries is obligated to register the sale of any of its or their securities under the 1933 Act and (iii) there are no anti-dilution or price adjustment provisions contained in any security issued by the Company (or in any agreement providing rights to security holders) that will be triggered by the issuance of the Grid Note, the Conversion Shares, or the Payment Shares. The Company has previously furnished to each Buyer true and correct copies of the Company's and each Subsidiary’s Articles of Incorporation as in effect on the date hereof ("Articles of Incorporation"), the Company's By-laws, as in effect on the date hereof (the "By-Laws"), and the terms of all securities convertible into or exercisable for Common Stock of the Company and the material rights of the holders thereof in respect thereto. In the event that the date of execution of this Agreement is not the Closing Date, the Company shall provide each Buyer with a written update of this representation signed by the Company's President and Chief Executive or Chief Financial Officer on behalf of the Company as of the Closing Date (“Closing Bring-Down Certificate”).  No further approval or authorization of any stockholder, the Board of Directors of the Company or others is required for the issuance and sale of the 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 best knowledge of the Company, between or among any of the Company’s stockholders.

(d)   

Issuance of Shares. Upon issuance upon conversion of the Grid Note with their respective terms, and receipt of the exercise price therefor, the Conversion Shares , along with any Payment Shares or any other shares issued pursuant to the terms of the Transaction Documents, will be validly issued, fully paid and non-assessable, and free from all taxes, liens, claims and encumbrances and shall not be subject to preemptive rights or other similar rights of stockholders of the Company and will not impose personal liability upon the holder thereof, other than restrictions on transfer under the Transaction Documents, applicable state and federal securities laws, or liens or encumbrances created by or imposed by a Buyer.
 

(e)   

Acknowledgment of Dilution. The Company understands and acknowledges the potentially dilutive effect to the Common Stock upon the issuance of the Conversion Shares upon conversion of or otherwise pursuant to the Grid Notes .The Company further acknowledges that its obligation to issue Conversion Shares upon conversion of or otherwise pursuant to the Grid Notes, in accordance with this Agreement, and to otherwise issue Payment Shares or other shares of Common Stock to the Buyer is absolute and unconditional regardless of the dilutive effect that such issuance may have on the ownership interests of other stockholders of the Company. Taking the foregoing into account, the Company's Board of Directors has determined, in its good faith business judgment, that the issuance of the Securities hereunder and under the Grid Notes and the consummation of the transactions contemplated hereby and thereby are in the best interest of the Company and its stockholders.

12

(f)   

No Conflicts. Except as otherwise set forth in Schedule 3(f), the execution, delivery and performance of each of the Transaction Documents by the Company and the consummation by the Company of the transactions contemplated hereby and thereby (including, without limitation, the issuance and reservation for issuance of the Conversion Shares will not (i) conflict with or result in a violation of any provision of the Certificate of Incorporation or By-laws, (ii) trigger any resets of conversion or exercise prices in other outstanding convertible securities, warrants or options of the Company, (iii) trigger the issuance of securities by the Company to any third party, (iv) violate or conflict with, or result in a breach of any provision of, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture, or to the knowledge of the Company, patent, patent license or instrument to which the Company or any of its Active Subsidiaries is a party, or (v) result in a violation of any law, rule, regulation, order, judgment or decree (including federal and state securities laws and regulations and regulations of any self-regulatory organizations to which the Company or its securities are subject) applicable to the Company or any of its Active Subsidiaries or by which any property or asset of the Company or any of its Active Subsidiaries is bound or affected (except, in the case of clauses (i), (iv) and (v) above, for such conflicts, defaults, terminations, amendments, accelerations, cancellations and violations as would not, individually or in the aggregate, have a Material Adverse Effect). Neither the Company nor any of its Active Subsidiaries is in violation of its Articles of Incorporation, By-laws or other organizational documents and neither the Company nor any of its Active Subsidiaries is in default (and no event has occurred which with notice or lapse of time or both could put the Company or any of its Active Subsidiaries in default) under, and neither the Company nor any of its Active Subsidiaries has taken any action or failed to take any action that would give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Company or any of its Active Subsidiaries is a party or by which any property or assets of the Company or any of its Active Subsidiaries is bound or affected, except for possible defaults as would not, individually or in the aggregate, have a Material Adverse Effect. The businesses of the Company and its Active Subsidiaries, if any, are not being conducted, and shall not be conducted so long as a Buyer owns any of the Securities, in violation of any law, ordinance or regulation of any governmental entity, the violation of which would have a Material Adverse Effect. Except as disclosed in Schedule 3(f) or as specifically contemplated by this Agreement or as required under the 1933 Act, the 1934 Act  and any applicable state securities laws, the Company is not required to obtain any consent, authorization or order of, or make any filing or registration with, any court, governmental agency, regulatory agency, self regulatory organization or stock market or any third party in order for it to execute, deliver or perform any of its obligations under this Agreement, or the Grid Notes in accordance with the terms hereof or thereof or to issue and sell the Grid Notes in accordance with the terms hereof and to issue the Conversion Shares upon conversion of or otherwise pursuant to the Grid Notes. Except as disclosed in Schedule 3(f), all consents, authorizations, orders, filings and registrations which the Company is required to obtain pursuant to the preceding sentence have been obtained or effected on or prior to the date hereof. The Company and its Active Subsidiaries are unaware of any facts or circumstances which might give rise to any of the foregoing.

13

(g)   

SEC Documents; Financial Statements.  Since at least the beginning of the most recent fiscal quarter that began more than two (2) years prior to the Closing Date, the Company has timely filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC pursuant to the reporting requirements of the 1934 Act (all of the foregoing filed prior to the date hereof and since at least the beginning of the most recent fiscal quarter that began more than two (2) years prior to the Closing Date, and all exhibits included therein and financial statements and schedules thereto and documents (other than exhibits to such documents) incorporated by reference therein, being hereinafter referred to herein as the "SEC Documents"). For purposes of this Agreement, “Timely Filed” shall mean that the applicable document was filed (i) by its original due date under the 1934 Act, or, if a request for an extension was timely filed, (ii) by such extended due date.  True and complete copies of the SEC Documents are available on the SEC’s internet website (www.sec.gov), except for such exhibits and incorporated documents. Upon the request of a Buyer, the Company will promptly provide copies of the SEC Documents to such Buyer.  As of their respective dates, the SEC Documents complied in all material respects with the requirements of the 1934 Act and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC Documents, at the time they were filed with the SEC, 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. None of the statements made in any such SEC Documents is, or has been, required to be amended or updated under applicable law (except for such statements as have been amended or updated in subsequent filings prior to the date hereof). As of their respective dates, the financial statements of the Company (and the Buyers thereto) included in the SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto. Such financial statements have been prepared in accordance with United States generally accepted accounting principles, consistently applied, during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto, or (ii) in the case of unaudited interim statements, to the extent they may not include footnotes or may be condensed or summary statements) and fairly present in all material respects the consolidated financial position of the Company and its consolidated Subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). Except as set forth in the financial statements of the Company included in the SEC Documents, the Company has no liabilities, contingent or otherwise, other than (i) liabilities incurred in the ordinary course of business, consistent with prior practice, subsequent to the date of the Company’s most recent 10-QSB or 10-KSB and (ii) obligations under contracts and commitments incurred in the ordinary course of business, consistent with prior practice, and not required under generally accepted accounting principles to be reflected in such financial statements, which, individually or in the aggregate, are not material to the financial condition or operating results of the Company.
 

14

(h)   

Absence of Certain Changes. Except for losses incurred in the ordinary course of business, consistent with prior practice, that have been publicly disclosed at least five (5) days prior to the date hereof or as set forth on Schedule 3(h) hereof, since the date of the Company’s most recent 10-Q or 10-K, there has been no material adverse change and no material adverse development in the assets, liabilities, business, properties, operations, financial condition, results of operations or prospects of the Company or any of its Subsidiaries. For purposes of this Section 3(h), the terms "Material Adverse Change" and "Material Adverse Development" shall exclude continuing losses that are consistent with the Company's historical losses.  Except as disclosed in Schedule 3(h), since the date of the Company’s most recent audited financial statements contained in a Form 10-KSB, neither the Company nor any of its Subsidiaries has

(i) 

declared or paid any dividends on its Common
Stock;

(ii)
 

sold any assets, individually or in the aggregate,
in excess of $100,000 outside of the ordinary course of business, consistent
with prior practice;
 

(iii)  

except as set forth in Schedule 3(h), had capital expenditures, individually or in the aggregate, in excess of $100,000;

(iv) 

issued any stock, bonds or other corporate
securities or any rights, options or warrants with respect thereto;

(v) 

borrowed any amount or incurred or become subject
to any liabilities (absolute or contingent) except current liabilities incurred
in the ordinary course of business, consistent with prior practice, which are
comparable in nature and amount to the current liabilities incurred in the
ordinary course of business, consistent with prior practice, during the
comparable portion of its prior fiscal year, as adjusted to reflect the current
nature and volume of the Company's or such subsidiary's business;

(vi) 

discharged or satisfied any lien or encumbrance or
paid any obligation or liability (absolute or contingent), other than current
liabilities paid in the ordinary course of business, consistent with prior
practice;

(vii) 

declared or made any payment or distribution of
cash or other property to stockholders with respect to its stock, or purchased
or redeemed, or made any agreements so to purchase or redeem, any shares of its
capital stock;

(viii)  

sold, assigned or transferred any other tangible assets, or canceled any debts or claims, in either case in excess of $100,000, except in the ordinary course of business, consistent with prior practice;

(ix) 

sold, assigned or transferred any patent rights,
trademarks, trade names, copyrights, trade secrets or other intangible assets or
intellectual property rights, or disclosed any proprietary confidential
information to any person except to customers in the ordinary course of
business, consistent with prior practice, or to the Purchasers or their
representatives;

(x) 

suffered any material losses or waived any rights
of material value, whether or not in the ordinary course of business, or
suffered the loss of any material amount of prospective business;

(xi) 

made any changes in employee compensation except
in the ordinary course of business and consistent with past practices;

15

(xii) 

made capital expenditures or commitments therefor
that aggregate in excess of $100,000;

(xiii) 

[omitted];

(xiv) 

made charitable contributions or pledges in excess
of $10,000;

(xv) 

suffered any material damage, destruction or
casualty loss, whether or not covered by insurance;

(xvi) 

experienced any material problems with any
employee or senior management in connection with the terms and conditions of
their employment;

(xvii) 

effected any two or more events of the foregoing
kind which in the aggregate would be material to the Company or its
Subsidiaries; or

(xviii) 

entered into an agreement, written or otherwise,
to take any of the foregoing actions.

Except as set forth in Schedule 3(h), neither the Company nor any of its Subsidiaries has taken any steps to seek protection pursuant to any bankruptcy law nor does the Company have any knowledge or reason to believe that its creditors intend to initiate involuntary bankruptcy proceedings or any actual knowledge of any fact which would reasonably lead a creditor to do so. 

(i)  

Absence of Litigation.  Except as disclosed in Schedule 3(i-1), to the best knowledge of the Company or any of its Subsidiaries, there is no action, suit, claim, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the best knowledge of the Company or any of its Subsidiaries, threatened against or affecting the Company or any of its Subsidiaries, or their officers or directors in their capacity as such. Schedule 3(i-2) contains a complete list and summary description of any known pending or threatened proceeding against or affecting the Company or any of its Subsidiaries, without regard to whether it, if adversely decided, would have a Material Adverse Effect. The Company and its Subsidiaries are unaware of any facts or circumstances which might give rise to any of the foregoing, where it, if adversely decided, would have a Material Adverse Effect.

16

(j)  

Patents, Copyrights, Etc.  All of the Company’s material patents, patent applications, Patents (as defined below), patent rights, inventions, know-how, trade secrets, trademarks, trademark applications, service marks, service names, trade names and copyrights ("Intellectual Property") are set forth in Schedule 3(j-1) hereof.  The Company and its Subsidiaries own or possess adequate rights or licenses to use all of the Intellectual property and the rights to receive proceeds from patent licensing agreements, patent infringement litigation or other litigation related to such intellectual property (collectively, the “Intellectual Property Rights”). Any Liens, encumbrances or licenses that have been granted against the Intellectual Property are listed in Schedule 3(j-2).  Except as set forth in Schedule 3(J-2), to the best of the Company’s knowledge, none of the Company's Intellectual Property Rights have expired or terminated, or are expected to expire or terminate, within three years from the date of this Agreement.  Except as otherwise set forth on Schedule 3(j-2), the Company owns all right and title to the Intellectual Property free and clear of any Liens or encumbrances and has not granted any licenses or rights to use any of the Patents to any third party. The Company and each of its Subsidiaries owns or possesses the requisite licenses or rights to use all Intellectual Property necessary to enable it to conduct its business as now operated, including but not limited to the intellectual property set forth in Schedule 3(j-1) hereof (and, except as otherwise set forth in Schedule 3(j-2) hereof, to the best of the Company's knowledge, as presently contemplated to be operated in the future), except for such licenses or rights the failure of which to own or possess would not, individually or in the aggregate, have a Material Adverse Effect; there is no claim or action by any person pertaining to, or proceeding pending, or to the Company's knowledge threatened, which challenges the right of the Company or of a Subsidiary with respect to any Intellectual Property necessary to enable it to conduct its business as now operated (and, except as otherwise set forth in Schedule 3(j-2) hereof, to the best of the Company's knowledge, as presently contemplated to be operated in the future), except for actions or claims which, if adversely decided, would not have a Material Adverse Effect; to the best of the Company's knowledge, the Company's or its Subsidiaries' current and intended products, services and processes do not infringe on any Intellectual Property Rights or other rights held by any person, and the Company is unaware of any facts or circumstances which might give rise to any of the foregoing. The Company and each of its Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of their Intellectual Property.  

For purposes hereof, "Patents" means all domestic and foreign letters patent, design patents, utility patents, industrial designs, inventions, trade secrets, ideas, concepts, methods, techniques, processes, proprietary information, technology, know-how, formulae, rights of publicity and other general intangibles of like nature, now existing or hereafter acquired (including, without limitation, all domestic and foreign letters patent, design patents, utility patents, industrial designs, inventions, trade secrets, ideas, concepts, methods, techniques, processes, proprietary information, technology, know-how and formulae described in Schedule 3(j-1) hereof), all applications, registrations and recordings thereof (including, without limitation, applications, registrations and recordings in the United States Patent and Trademark Office, or in any similar office or agency of the United States or any other country or any political subdivision thereof), and all reissues, divisions, continuations, continuations in part and extensions or renewals thereof, in each case owned by the Company or an of its Subsidiaries.

(k)     

No Materially Adverse Contracts, Etc. Neither the Company nor any of its Subsidiaries is subject to any charter, corporate or other legal restriction, or any judgment, decree, order, rule or regulation which to the knowledge of the Company, has or is reasonably likely in the future to have a Material Adverse Effect. Neither the Company nor any of its Subsidiaries is a party to any contract or agreement, or has knowledge of a breach of any contract or agreement to which the Company or any of its Subsidiaries is a party, either of which has or is reasonably likely to have a Material Adverse Effect.

17

(l)     

Tax Status. Except as set forth on Schedule 3(l), the Company and each of its Subsidiaries has timely made or filed all federal, state and foreign income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject (unless and only to the extent that the Company and each of its Subsidiaries has set aside on its books provisions reasonably adequate for the payment of all unpaid and unreported taxes) and has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and has set aside on its books provisions reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim. The Company has not executed a waiver with respect to the statute of limitations relating to the assessment or collection of any foreign, federal, state or local tax. Except as set forth on Schedule 3(l), none of the Company's tax returns is presently being audited by any taxing authority.

(m)    

Transactions With And Obligations To Affiliates.    Other than the grant of stock options disclosed on Schedule 3(m), none of the officers, directors, or employees of the Company is presently a party to any transaction with the Company or any of its Subsidiaries (other than customary employment contracts for ordinary course 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 best knowledge of the Company, any corporation, partnership, trust or other entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner.  Schedule 3(m) sets forth any loans, payables, payments, transactions, debt or equity securities, or similar agreements or obligations between the Company and any officers, directors, management or affiliates of the Company.

(n)   

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

(o)    

No Integrated Offering. Neither the Company, nor any of its Affiliates, nor any Person acting on its or their behalf, has directly or indirectly made any offers or sales of any security or solicited any offers to buy any security under circumstances that would require registration under the 1933 Act of the issuance of the Securities to any Buyer. The issuance of the Securities to each Buyer will not be integrated with any other issuance of the Company's securities (past, current or future) for purposes of any stockholder approval provisions applicable to the Company or its securities.

18

(p)  

No Brokers.  The identity of any brokers, finders or placement agents (each, a “Finder”) that are receiving compensation in respect to this Offering, along with the amount of cash, warrants or other consideration that compose any compensation to each such Finder, are disclosed in Schedule 3(p) hereto.  Other than as set forth on Schedule 3(p), the Company has taken no action which would give rise to any claim by any person for brokerage commissions, finder's fees or similar payments relating to this Agreement or the transactions contemplated hereby.  The Company shall indemnify and hold harmless each of Buyer, its employees, officers, directors, agents, and partners, and their respective Affiliates, from and against all claims, losses, damages, costs (including the costs of preparation and attorney's fees) and expenses suffered in respect of any such claimed or existing fees.

(q)   

Conduct of Business; Regulatory Permits; Compliance. The Company and each of its Subsidiaries is in possession of all franchises, grants, authorizations, licenses, permits, easements, variances, exemptions, consents, certificates, approvals and orders necessary to own, lease and operate its properties and to carry on its business as it is now being conducted (collectively, the "Company Permits"), except where the failure to so possess any such Company Permits would not have a Material Adverse Effect, and there is no action pending or, to the best knowledge of the Company, threatened regarding suspension or cancellation of any of the Company Permits. Neither the Company nor any of its Subsidiaries is in conflict with, or in default or violation of, any of the Company Permits, except for any such conflicts, defaults or violations which, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect. Neither the Company nor any of its Active Subsidiaries is in violation of any term of or in default under its respective Certificates or Articles of Incorporation or its Bylaws or their organizational charter or bylaws, respectively. Since the beginning of the most recent fiscal quarter that began more than two (2) years prior to the Closing Date, neither the Company nor any of its Subsidiaries has received any notification with respect to possible conflicts, defaults or violations of applicable laws, except for notices relating to possible conflicts, defaults or violations, which conflicts, defaults or violations would not have a Material Adverse Effect.    Neither the Company nor any such Subsidiary has received any notice of proceedings relating to the revocation or modification of any such certificate, authorization or permit. To the best of the Company’s knowledge, neither the Company nor any of its Subsidiaries is in violation of any judgment, decree or order or any statute, ordinance, rule or regulation applicable to the Company or its Subsidiaries, and neither the Company nor any of its Subsidiaries will conduct its business in violation of any of the foregoing, except for possible violations which could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.  Without limiting the generality of the foregoing, the Company is not in violation of any of the rules, regulations or requirements of the Principal Market, except for possible violations which could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, and has no knowledge of any facts or circumstances that would reasonably lead to delisting or suspension of the Common Stock by its Principal Market in the foreseeable future.  

19

(r)   

Title To Property. The Company and its Subsidiaries have good and marketable title in fee simple to all real property and good and marketable title to all personal property owned by them which is material to the business of the Company and its Subsidiaries, in each case free and clear of all Liens, encumbrances and defects except such as are described in Schedule 3(r) or such as would not have a Material Adverse Effect. Any real property and facilities held under lease by the Company and its Subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as would not have a Material Adverse Effect.                  

(s)   

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

(t)

Solvency. The Company and its Subsidiaries, individually and on a consolidated basis, are not as of the date hereof, and after giving effect to the transactions contemplated hereby to occur at the Closing, will not be Insolvent (as defined below) and currently the Company has no information that would lead it to reasonably conclude that the Company or any subsidiary would not have the ability to, nor does it intend to take any action that would impair its ability to, pay its debts from time to time incurred in connection therewith as such debts mature. Except as disclosed in Schedule 3(t), the Company did not receive a qualified opinion from its auditors with respect to its most recent fiscal year end and does not anticipate or know of any basis upon which its auditors might issue a qualified opinion in respect of its current fiscal year. For purposes of this Section 3(t), “Insolvent” means (i) the present fair saleable value of the Company’s assets is less than the amount required to pay the Company’s total Indebtedness, (ii) the Company is unable to pay its debts and liabilities, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured, (iii) the Company intends to incur or believes that it will incur debts that would be beyond its ability to pay as such debts mature or (iv) the Company has unreasonably small capital with which to conduct the business in which it is engaged as such business is now conducted and is proposed to be conducted.

(u)

No Investment Company. The Company is not, and upon the issuance and sale of the Securities as contemplated by this Agreement will not be, an "investment company" required to be registered under the Investment Company Act of 1940 (an "Investment Company"). The Company is not controlled by an Investment Company.

20

( v)
 

 No Undisclosed Liabilities. The Company has no liabilities or obligations which are material, individually or in the aggregate, other than those incurred in the ordinary course of the Company's businesses which have been disclosed in the Company’s public filings and which, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect other than as set forth in Schedule 3(v).

(w) 

 No Disagreements With Accountants And Lawyers. There are no disagreements of any kind presently existing, or reasonably anticipated by the Company or any Subsidiary to arise, between the Company or any Subsidiary and the accountants and lawyers formerly or presently employed by the Company or any Subsidiary, including but not limited to disputes or conflicts over payment owed to such accountants and lawyers.  

(x)   

Company Acknowledgment.  The Company hereby acknowledges that each Buyer may elect to hold its Grid Note for various periods of time, as permitted by the terms of the Transaction Documents and the Company further acknowledges that Buyer has made no representations or warranties, either written or oral, as to how long the Securities will be held by such Buyer or regarding Buyer’s trading history or investment strategies other than as provided in Section 2 of this Agreement.

(y)    

Disclosure.  
The Company confirms that neither it nor any other Person acting on its behalf has provided any of the Buyers or their agents or counsel with any information that constitutes material, nonpublic information concerning the Company or its Subsidiaries other than the existence of the transactions contemplated by this Agreement or the other Transaction Documents. The Company understands and confirms that  the Buyers will rely on the foregoing representations in effecting transactions in securities of the Company. All disclosure provided to the Buyers regarding the Company, its business and the transactions contemplated hereby, including the Schedules to this Agreement, furnished by or on behalf of the Company is true and correct in all material respects and does not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading. Each press release issued by the Company or any of its Subsidiaries during the twelve (12) months preceding the date of this Agreement did not at the time of release contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. No event or circumstance has occurred or information exists with respect to the Company or any of its Subsidiaries or its or their business, properties, prospects, operations or financial conditions, which, under applicable law, rule or regulation, requires public disclosure or announcement by the Company but which has not been so publicly announced or disclosed, or that would be required to be disclosed by the Company or any Subsidiary under applicable securities laws on a registration statement on Form S-1 or any other appropriate form filed with the SEC relating to an issuance and sale by the Company of its Common Stock, but which has not been so disclosed, in each case other than the transactions contemplated by this Agreement and by the other Transaction Documents.

21

(z)   

Absence of Certain Company Control Person Actions or Events.  To the Company’s knowledge, during the past five (5) years:

(i) 

No petition under the federal bankruptcy laws or
any state insolvency law was filed by or against, and no receiver, fiscal agent
or similar officer was appointed by a court for the business or property of such
Company Control Person (as defined below), or any partnership in which he was a
general partner at or within two years before the time of such filing, or any
corporation or business association of which he was an executive officer at or
within two years before the time of such filing;

(ii) 

No Company Control Person was convicted in
a criminal proceeding or is a named subject of a pending criminal proceeding
(excluding traffic violations and other minor offenses); 

(iii) 

No Company Control Person has, to
the Company’s knowledge, been the subject of any order, judgment or decree, that
was not subsequently reversed, suspended or vacated, of any court of competent
jurisdiction, permanently or temporarily enjoining him from, or otherwise
limiting, the following activities: 

(A)  

acting, as an investment advisor, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, any other Person regulated by the Commodity Futures Trading Commission (“CFTC”) or engaging in or continuing any conduct or practice in connection with such activity;

(B) 

engaging in any type of business practice; or

(C) 

engaging in any activity in connection with the
purchase or sale of any security or commodity or in connection with any
violation of federal or state securities laws or federal commodities laws;

(iv) 

No Company Control Person has been the subject of
any order, judgment or decree, not subsequently reversed, suspended or vacated,
of any federal or state authority barring, suspending or otherwise limiting for
more than sixty (60) days the right of such Company Control Person to engage in
any activity described in paragraph (3) of this item, or to be associated with
Persons engaged in any such activity; or

(v)  

No Company Control Person was found by a court of competent jurisdiction in a civil action or by the CFTC or SEC to have violated any federal or state securities law, and the judgment in such civil action or finding by the CFTC or SEC has not been subsequently reversed, suspended, or vacated.

22

For purposes hereof, “Company Control Person” means each director, executive officer, promoter, and such other Persons as may be deemed in control of the Company pursuant to Rule 405 under the 1933 Act or Section 20 of the 1934 Act.

(aa)     

DTC Status. The Company's transfer agent is a participant in and the Common Stock is eligible for transfer pursuant to the Depository Trust Company Automated Securities Transfer Program. The name, address, telephone number, fax number, contact person and email address of the Company transfer agent is set forth on Schedule 3(aa) hereto.

(bb)    

Sarbanes-Oxley; Internal Accounting Controls.  Except as disclosed in Schedule 3(bb), the Company is in material compliance with all provisions of the Sarbanes-Oxley Act of 2002 which are applicable to it as of the Closing Date.

(cc)    

Seniority.  Except as set forth on Schedule 3(cc), as of the Closing Date, no indebtedness or other equity of the Company is senior to or pari passu with the Grid Notes in right of payment, whether with respect to interest or upon liquidation or dissolution, or otherwise.

(dd)    

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

(ee)

Conduct of Business.  Neither the Company nor any of its Active Subsidiaries is in violation of any term of or in default under its Articles of Incorporation, Bylaws or their organizational charter or bylaws, respectively. Except as disclosed in Schedule 3(ee), neither the Company nor any of its Subsidiaries is in violation of any judgment, decree or order to its knowledge, any statute, ordinance, rule or regulation applicable to the Company or its Subsidiaries, and neither the Company nor any of its Subsidiaries will conduct its business in violation of any of the foregoing, except for possible violations which would not, individually or in the aggregate, have a Material Adverse Effect.  Without limiting the generality of the foregoing, the Company is not in violation of any of the rules, regulations or requirements of the Principal Market other than violations which could not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect and has no knowledge of any facts or circumstances which would reasonably lead to delisting or suspension of the Common Stock by the Principal Market in the foreseeable future.  Except as disclosed on Schedule 3(ee) since at least January 1, 2007 , (i) the Common Stock has been designated for quotation on the Principal Market, (ii) trading in the Common Stock has not been suspended by the SEC or the Principal Market and (iii) the Company has received no communication, written or oral, from the SEC or the Principal Market regarding the suspension or delisting of the Common Stock from the Principal Market, and the Company has not received any letters of inquiry from the SEC Division of Enforcement or state securities regulators in the past 24 months related to any potential or alleged violation of state or federal securities laws.  The Company and its Subsidiaries possess all certificates, authorizations and permits issued by the appropriate regulatory authorities necessary to conduct their respective businesses, except where the failure to possess such certificates, authorizations or permits would not have, individually or in the aggregate, a Material Adverse Effect, and neither the Company nor any such Subsidiary has received any notice of proceedings relating to the revocation or modification of any such certificate, authorization or permit.

23

 (ff)   

Obligations to Issue Additional Securities.   Except as set forth in Schedule 3(ff), there are no outstanding debt or equity securities, warrants or options, or Common Stock Equivalents, and all contractual agreements of the Company, in each case, that contain any provisions (“Triggering Provisions”) that could require the adjustment to conversion or exercise prices of existing securities, or the issuance of additional securities triggered as a result of the issuance of securities by the Company or by the passage of time on or after the date of this Line of Credit Agreement.

(gg)

Regulation M Compliance.  The Company has not, and to its knowledge no one acting on its behalf has, (i) taken, directly or indirectly, any action designed to cause or to result in the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of any of the Securities, (ii) sold, bid for, purchased, or paid any compensation for soliciting purchases of, any of the securities of the Company or (iii) paid or agreed to pay to any Person any compensation for soliciting another to purchase any other securities of the Company, other than, in the case of clauses (ii) and (iii), compensation paid to the Company’s placement agent in connection with the placement of the Securities.
 

4.

COVENANTS.  Notwithstanding anything to the contrary herein, with respect to the covenants in this sections applicable to the Company: the Company’s obligations to follow such covenants shall continue until such time as less than 20% of the principal amount of Grid Note issued in the Offering remain outstanding; and, any or all of such covenants may be waived by the written consent of the Required Holders (as defined in the Grid Note).

(a)   

Form D; Blue Sky Laws. The Company agrees to file a Form D with respect to the Securities as required under Regulation D and to provide a copy thereof to each Buyer promptly after such filing. The Company shall, on or before the Closing Date, take such action as the Company shall reasonably determine is necessary to qualify the Securities for sale to the Buyer at the Closing pursuant to this Agreement under applicable securities or "blue sky" laws of the states of the United States (or to obtain an exemption from such qualification), and , to the extent any such actions are required to be taken on or prior to the Closing Date, shall provide evidence of any such action so taken to each Buyer on or prior to the Closing Date.

(b)  

Reporting Status. The Company's Common Stock is registered under Section 12(b) or 12(g) of the 1934 Act. So long as any Buyer beneficially owns any of the Securities, the Company shall timely file all SEC Documents required to be filed with the SEC pursuant to the 1934 Act, and the Company shall not terminate its status as an issuer required to file reports under the 1934 Act even if the 1934 Act or the rules and regulations thereunder would permit such termination.
 

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(c)

Advances; Use of Proceeds.   

(i)  

In order to request an Advance from Buyers, the Company shall present the Buyers with a Wire Transfer Request attached herewith as Exhibit C,
requesting Buyers to wire an amount (the “Requested Amount”) of the Offering Proceeds directly to one or more of the Company’s suppliers of  inventory for the Company (each, a “Supplier”), as identified by the Company.  The aggregate Requested Amount requested from all Buyers shall not exceed the amount that the Company owes to the Supplier for inventory previously provided or to be provided to the Company within the subsequent 30 days.  Following receipt of a Wire Transfer Request, subject to the Buyer Limit (as defined below) the Buyer may wire any amount up to the Requested Amount to the specified Supplier, on the Company’s behalf, pursuant to the instructions provided by the Company, and any such amounts shall be considered as an Advance of Offering Proceeds by the Buyer to the Company.

(ii)
 

Subject to the Buyer Limit, each Buyer, at its
option in its sole and absolute discretion, may Advance additional amounts under
this Agreement in excess of the Requested Amount by either (a) wiring any amount
up to the remaining Buyer Limit to a Supplier, on the Company’s behalf, pursuant
to the instructions provided by the Company, and any such amounts shall be
considered as an Advance of Offering Proceeds by the Buyer to the Company, or
(b) wiring any amount up to the remaining Buyer Limit to directly to the
Company.
 

(iii)  

No Buyer may make Advances in excess of its Pro-Rata Percentage (as set forth next to such Buyer’s name in the Schedule of Buyers attached hereto) of the Maximum Aggregate Principal Amount (the “Buyer Limit”) provided that upon the written assignment by   one Buyer (the “Assigning Buyer”) of its Buyer Limit to another Buyer, such other Buyer may make additional advances beyond its original Buyer Limit under the Buyer Limit of the Assigning Buyer.

(iv)  

All sums Advanced by the Buyers hereunder (the “Offering Proceeds”) shall be used by the Company solely for the purchase of inventory for the Company (“Allowed Use of Proceeds”).  Any funds Advanced directly to the Company shall be immediately paid to a Supplier for the purchase of inventory until all Suppliers are brought current and, then shall be used for any other outstanding payables until there are no remaining payables outstanding.  

25

(d)

Securities Issuance Restrictions; Capital Raising Limitations; Right of Participation.

(i)  

Capital Raising Limitations.  During the period from the date hereof and for so long as any Grid Note remains outstanding, the Company shall not issue, or agree to issue, Common Stock of the Company or options to purchase Common Stock of the Company to any officers, directors, management or affiliates of the Company, unless such issuance is an Exempt Issuance.  In addition, during the period from the date hereof and for so long as any Grid Note remains outstanding, notwithstanding whether or not an issuance of securities is an Exempt Issuance, the Company shall not issue or sell, or agree to issue or sell Variable Equity Securities (as defined below)(the “Variable Equity Securities Lock-Up”), without obtaining the prior written approval of each of the Buyers, with the exception of any such agreements or transactions that (x) exist as of the date hereof and (y) are not amended or modified after the date hereof.  For purposes hereof, the following shall be collectively referred to herein as, the “Variable Equity Securities”: (A) any debt or equity securities which are convertible into, exercisable or exchangeable for, or carry the right to receive additional shares of Common Stock either (1) at any conversion, exercise or exchange rate or other price that is based upon and/or varies with the trading prices of or quotations for Common Stock at any time after the initial issuance of such debt or equity security, or (2) with a fixed conversion, exercise or exchange price that is subject to being reset at some future date at any time after the initial issuance of such debt or equity security due to a change in the market price of the Company’s Common Stock since date of initial issuance, or (B) any amortizing convertible security which amortizes prior to its maturity date, where the Company is required to or has the option to (or the investor in such transaction has the option to require the Company to) make such amortization payments in shares of Common Stock (whether or not such payments in stock are subject to certain equity conditions), or (C) any transaction involving a written agreement between the Company and an investor or underwriter whereby the Company has the right to “put” its securities to the investor or underwriter over an agreed period of time and at an agreed price or price formula (each, an “Equity Line” transaction) or (D) any common stock that is accompanied by a number of warrants greater than the number of warrants greater than the number of shares of common stock sold by the Company in such transaction, or (E) any note, debenture or other debt obligation that is accompanied by shares of Common Stock for which the additional consideration paid per share of Common Stock is less than 90% of the Market Price at the time of closing.  For purposes of the above, the “Market Price” at time of closing shall mean the Market Price, as defined in the Grid Notes.

It is expressly agreed and understood that the Variable Equity Securities Lock-Up shall apply in respect of an Exempt Issuance and that no issuance of Variable Equity Securities shall be an Exempt Issuance.  

(ii)  

Additional Grid Note; Dilutive Issuances.

 For long as any Grid Notes remain outstanding, the Company shall not, in any manner, enter into or affect any Dilutive Issuance (as defined in the Grid Notes) if the effect of such Dilutive Issuance is to cause the Company to be required to issue upon conversion of any Grid Note without breaching the Company's obligations under the rules or regulations of the Principal Market or any applicable Eligible Market.
 

26

(iii)  

Buyers’ Right of Participation in Future Financings.
 

(A)
 

From the date hereof and during the period that any amount of any Grid Note is outstanding, upon any financing by the Company or any of its subsidiaries (each, a “Subsequent Financing”) of Common Stock or Common Stock Equivalents (as defined in Section 1(a)), excluding any securities issued pursuant to the Offering described in this Agreement, each Buyer shall have the right to participate (the “Buyer’s Right of Participation”) in up to the Buyer’s Participation Maximum (as defined below) of the Subsequent Financing, provided that any securities issued to the Buyer hereunder, and any securities issuable pursuant to the conversion or exercise of such securities, shall be subject to the Beneficial Ownership Limitation.
 

(B)  

At least ten (10) days prior to the closing of the Subsequent Financing, the Company shall deliver to each Buyer a written notice of its intention to effect a Subsequent Financing (an “Advance Notice of Financing”), which Advance Notice of Financing shall ask such Buyer if it wants to review the details of such financing (such additional notice, a “Subsequent Financing Notice”).  Upon the request of a Buyer, and only upon a request by such Buyer, for a Subsequent Financing Notice, the Company shall promptly, but no later than one (1) Trading Day after such request, deliver a Subsequent Financing Notice to such Buyer.  The Subsequent Financing Notice shall describe in reasonable detail the proposed terms of such Subsequent Financing, the amount of proceeds intended to be raised thereunder, the Person with whom such Subsequent Financing is proposed to be effected, and attached to which shall be a term sheet or similar document relating thereto and complete, definitive legal documentation (“Legal Documents”) for the proposed Subsequent Financing.    

(C)  

Any Buyer desiring to participate in such Subsequent Financing must provide written notice (“Participation Notice”) to the Company by not later than 5:30 p.m. (New York City time) on the fifth (5th) Trading Day after such Buyer has received the Advance Notice of Financing that the Buyer is willing to participate in the Subsequent Financing, the amount of the Buyer’s participation, and that the Buyer has such funds ready, willing, and available for investment on the terms set forth in the Subsequent Financing Notice.  If the Company receives no notice from a Buyer as of such fifth (5th) Trading Day, such Buyer shall be deemed to have notified the Company that it does not elect to participate.  Buyer shall not be obligated to participate in a Subsequent Offering after delivering a Participation Notice to the Company until after the Buyer has reviewed and agreed to the final Legal Documents for such offering.

(D)  

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

27

(E)  

If by 5:30 p.m. (New York City time) on the fifth (5th) Trading Day after all of the Buyers have received the Advance Notice of Financing, the Company receives responses to a Subsequent Financing Notice from Buyers seeking to purchase more than the aggregate amount of the Subsequent Financing, each such Buyer shall have the right to purchase up to (the “Buyer’s Participation Maximum”) (a) their Pro Rata Portion (as defined below) of the Subsequent Financing, plus (b) a pro rata amount (based upon the relative amount of the participating Buyers’ respective Pro Rata Portions) of the aggregate of the unused Pro Rata Portions of the other Buyers.   For purposes hereof, “Pro Rata Portion” shall mean the percentage listed next to each Buyer’s name on the Schedule of Buyers attached hereto.

(F)  

For purposes of clarity, in the event that there
is any amount of a Subsequent Financing that is not requested to be purchased by
a Buyer, then any other Buyer shall have the right to purchase such remaining
amount of the Subsequent Financing.

(G) 

The Company must provide the Buyers with a second
Subsequent Financing Notice, and the Buyers will again have the right of
participation set forth above in this Section 4(d)(iii), if the Subsequent
Financing subject to the initial Subsequent Financing Notice is not consummated
for any reason on the terms set forth in such Subsequent Financing Notice within
thirty (30) Trading Days after the date of the initial Subsequent Financing
Notice.

(H)  

The Company and the Buyers agree that if any Buyer elects to participate in the Subsequent Financing, (x) neither the agreement regarding the Subsequent Financing (the "Subsequent Placement Agreement") with respect to such Subsequent Financing nor any other transaction documents related thereto (collectively, the "Subsequent Placement Documents") shall include any term or provisions whereby any Buyer shall be required to agree to any restrictions in trading as to any securities of the Company owned by such Buyer prior to such Subsequent Financing, and (y) the Buyers shall be entitled to the same registration rights, if any, provided to other investors in the Subsequent Placement.

(iv)  

Most Favored Nation (MFN) Securities Exchange Provision.  From the date hereof until the date when such Buyer holds less than 20% in principal amount of Grid Notes originally purchased by such Buyer hereunder, if the Company effects a Subsequent Financing, each Buyer may elect, in its sole discretion, to exchange (an “MFN Exchange”) all or some of the Grid Notes then held by such Buyer for any securities or units issued in a Subsequent Financing on a $1.00 for $1.00 basis based on the outstanding principal amount of such Grid Notes, along with any liquidated damages and other amounts owing thereon, and the effective price at which such securities were sold in such Subsequent Financing; PROVIDED, HOWEVER, that this Section 4(d)(iv) shall not apply with respect to (a) an Exempt Issuance or (b) a firm commitment underwritten public offering of Common Stock with a reputable national underwriter. The Company shall provide each Buyer with notice of any such Subsequent Financing in the manner set forth in Section 4(d)(iii).  Following such an exchange, the Holder shall receive any warrants, options or other ancillary securities that normally accompany the securities being purchased and sold in the Subsequent Financing.  

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(v)  

Injunctive Relief.   The remedies provided in this Agreement shall be cumulative and in addition to all other remedies available under this Agreement and any of the other Transaction Documents at law or in equity (including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit the Holder's right to pursue actual and consequential damages for any failure by the Company to comply with the terms of this Agreement or any of the Transaction Documents.  The Company acknowledges that a breach by it of its obligations under this Agreement or the other Transaction Documents, including but not limited to a breach of its obligations under this Subsection 4(d) hereof, will cause irreparable harm to each Buyer, by vitiating the intent and purpose of the transactions contemplated hereby. Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Agreement or the other Transaction Documents, including but not limited to a breach of its obligations under this Subsection 4(d) hereof, will be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Agreement or the other Transaction Documents, that each Buyer shall be entitled, in addition to all other available remedies in law or in equity, to an injunction or injunctions to prevent or cure any breaches of the provisions of this Agreement or the other Transaction Documents, including but not limited to a breach of its obligations under this Subsection 4(d) hereof, and to enforce specifically the terms and provisions of this Agreement and the other Transaction Documents, including but not limited to its obligations under this Subsection 4(d), without the necessity of showing economic loss and without any bond or other security being required.  Specifically, the Buyer shall be entitled to injunctive relief to cause the court to rescind any financing or financings or other transactions between the Company and a third party that are in violation of this Subsection 4(d).

(e)

  Authorization And Reservation of Shares. 

(i)  

Authorization and Reservation Requirements. The Company represents that it has at least 200,000,000 authorized shares of Common Stock and covenants that it will initially reserve (the “Initial Share Reservation”) from its authorized and unissued Common Stock a number of shares of Common Stock equal to at least 150% of the Original Principal Amount of the Grid Notes, divided by the Conversion Price in effect on the date of the Initial Share Reservation, free from preemptive rights, to provide for the issuance of Common Stock upon the conversion of the Grid Notes.  The Company further covenants that, beginning on the date hereof, and continuing throughout the period that any Grid Notes remain outstanding, the Company shall at all times have authorized, and reserved (together with the Initial Share Reservation Requirement, collectively referred to as the “Ongoing Share Reservation Requirement”) for the purpose of issuance, a sufficient number of shares of Common Stock to provide for the full conversion or exercise of the outstanding portion of the Grid Notes and issuance of the Conversion Shares in connection therewith (based on the Conversion Price (as defined in the Grid Notes) in effect from time to time. The Company shall not reduce the number of shares of Common Stock reserved for issuance upon conversion of or otherwise pursuant to the Grid Notes without the consent of the Buyer. The Company shall at all times maintain the number of shares of Common Stock so reserved for issuance at no less than 100% of the number that is then actually issuable upon full conversion of the Grid Notes (based on the Conversion Price (as defined in the Grid Notes) in effect from time to time) (without regard to any limitations on the number of shares issuable upon the Conversion of the Grid Notes).
 

29

(ii)  

Stockholder Approval.  If at any time the number of shares of Common Stock authorized and reserved for issuance is below 100% of the number of Conversion Shares issued and issuable upon conversion of or otherwise pursuant to the Grid Notes (based on the Conversion Price (as defined in the Grid Notes) in effect from time to time), together with the Payment Shares and any other shares of Common Stock issued or issuable pursuant to the terms of the Transaction Documents, the Company will promptly take all corporate action necessary to authorize and reserve a sufficient number of shares, including, without limitation, calling a special meeting of stockholders to authorize additional shares to meet the Company's obligations under this Section 4(e), in the case of an insufficient number of authorized shares, and using its best efforts to obtain stockholder approval of an increase in such authorized number of shares.

(f)    

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

(g)    

Listing.  The Company will use its best efforts to obtain and, so long as any Buyer owns any of the Securities, maintain the listing and trading of its Common Stock on an Eligible Market (whichever Eligible Market is at the time the principal trading exchange or market for the Common Stock is referred to herein as the "Principal Market"), and will comply in all respects with the Company's reporting, filing and other obligations under the bylaws or rules of the Financial Industry Regulatory Authority (“FINRA”) and such exchanges, as applicable. The Company shall promptly provide to Buyer copies of any notices it receives from the Principal Market and any other exchanges or quotation systems on which the Common Stock is then listed regarding the continued eligibility of the Common Stock for listing on such exchanges and quotation systems.

30

(h)

Corporate Existence. So long as a Buyer beneficially owns any portion of the Grid Notes, the Company shall maintain its corporate existence in good standing and remain a “Reporting Issuer” (defined as a Company which files periodic reports under the 1934 Act).

(i)

No Integration. The Company shall not sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in Section 2 of the 1933 Act) that would be integrated with the offer or sale of the Securities to the Buyers in a manner that would require the registration under the 1933 Act of the sale of the Securities to the Buyers or that would be integrated with the offer or sale of the Securities for purposes of the rules and regulations of any Trading Market, except where such integration (i) will not adversely affect the private offering exemption from registration for this Offering or change the deemed date of Closing of this Offering, (ii) will not cause the Rule 144 holding period for any of the Securities issued or issuable to the Buyers to be delayed or extended and, (iii) will not otherwise adversely affect the Buyers or the Securities issuable hereunder.

 (j)  

Limitation on Sale or Disposition of Intellectual Property.   So long as any portion of the Grid Notes remain outstanding, so long as the Company shall have any obligation under the Grid Notes remains outstanding, the Corporation shall not sell, convey, dispose of, spin off or assign any or all of its Intellectual Property (including but not limited to the Intellectual Property set forth in Schedules 3(j)(1) and (2) hereof), or any of the Intellectual Property Rights, in each case without Buyer’s written consent, provided that the Company may, without the Buyer’s written consent, enter into one or more licensing agreements with respect to its Intellectual Property so long as such licensing agreements exceed $5 million per calendar year and so long as such agreements are not with any affiliate (as such term is defined in Rule 501(b) of Regulation D) of the Company or with any relative of, or entity controlled by, or any entity 10% or more of which is owned by, any officer, director, employee or former employee of the Company, provided, further, that the Company shall not be subject to the restrictions of this Section 4(j) if the cash consideration received by the Company in exchange for such Intellectual Property Rights exceeds $50 million.  

(k)

Limitation On Rate of Issuance of Shares.     The parties agree that, if by virtue of this AGREEMENT, or by virtue of any other agreement between the parties, Holder becomes entitled to receive from the Company a number of shares of Common Stock of the Company (collectively, “Issuable Securities”), such that the sum of (1) the number of shares of Common Stock of the Company beneficially owned by Holder and any applicable affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unconverted portion of the Grid Note, or the unexercised or unconverted portion of any other security of Holder subject to a limitation on conversion or exercise analogous to the limitations contained herein)(collectively, the “Beneficially Owned Shares”) and (2) the number Issuable Securities described above, with respect to which the determination of this proviso is being made, would result in beneficial ownership by the Holder and its affiliates of more than 4.99% (the “Maximum Percentage”) of the outstanding shares of Common Stock (the “Beneficial Ownership Limitation”), then the Company, following the receipt of written instructions from the Holder as to the number of shares of Common Stock that can be so issued, shall immediately deliver to Holder the number of shares of Common Stock of the Company, that can be issued without exceeding the Beneficial Ownership Limitation, and the Company shall not issue shares of Common Stock to the Buyer in excess of the Beneficial Ownership Limitation.

31

For purposes of the proviso to the immediately preceding sentence, (i) beneficial ownership shall be determined by the Holder in accordance with Section 13(d) of the 1934 Act and Regulations 13D-G thereunder, except as otherwise provided in clause (1) of such proviso to the immediately preceding sentence, and PROVIDED THAT the Beneficial Ownership Limitation shall be conclusively satisfied if the applicable notice from Holder includes a signed representation by the Holder that the issuance of the shares in such notice will not violate the Beneficial Ownership Limitation, and the Company shall not be entitled to require additional documentation of such satisfaction.
 

The parties agree that, in the event that the Company receives any tender offer or any offer to enter into a merger with another entity whereby the Company shall not be the surviving entity (an “Offer”), or in the event the Company is issuing Default Shares (as defined in the Grid Note) to the Buyer, then “4.99%” shall be automatically revised immediately after such offer to read “9.99%” each place it occurs in the first two paragraphs of this Section 4(n) above.  Notwithstanding the above, Holder shall retain the option to either exercise or not exercise its option(s) to acquire Common Stock pursuant to the terms hereof after an Offer.  In addition, the Beneficial Ownership Limitation provisions of this Section 4(k) may be waived by such Holder, at the election of such Holder, upon not less than sixty-one (61) days’ prior notice to the Company, to change the Beneficial Ownership Limitation to any other percentage not less than 4.99% and not in excess of 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon conversion of the Grid Note held by the Holder as applicable, and the provisions of this Section 4(k) shall continue to apply, provided that, if an Event of Default occurs under the Grid Note, thereafter the Beneficial Ownership Limitation provisions of this section may be waived by such Holder, at the election of such Holder, upon not less than sixty-one (61) days’ prior notice to the Company, to change the Maximum Percentage to any other percentage not less than 4.99% (and not limited to 9.99%) of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon conversion of this Grid Note held by the Holder and the provisions of this section shall continue to apply.  The limitations on conversion set forth in this subsection are referred to as the “Beneficial Ownership Limitation.”  Upon such a change by a Holder of the Beneficial Ownership Limitation from such 4.99% Beneficial Ownership Limitation to such 9.99% limitation, the Beneficial Ownership Limitation may not be further waived by such Holder.  

The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 4(k) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation.

32

Maximum Exercise of Rights. In the event the Buyer notifies the Company in writing that the exercise of the rights described herein, or the issuance of Payment Shares or other shares of Common Stock issuable to the Holder under the terms of the Transaction Documents (collectively, “Issuable Shares”) would result in the issuance of an amount of Common Stock of the Company that would exceed the maximum amount that may be issued to a Buyer calculated in the manner described in this Section 4(j) of this Agreement, then the issuance of such additional shares of Common Stock of the Company to such Buyer will be deferred in whole or in part until such time as such Buyer is able to beneficially own such Common Stock without exceeding the maximum amount set forth calculated in the manner described in herein. The determination of when such Common Stock may be issued shall be made by each Buyer as to only such Buyer. 

(l)

Equal Treatment of Buyers.  The terms of Securities issued to Buyers per the terms of this Agreement and the Transaction Documents shall be identical in all material respects.  In addition, neither the Company nor any of its affiliates shall, directly or indirectly, pay or cause to be paid any consideration (immediate or contingent), whether by way of interest, fee, payment for the redemption, conversion of the Grid Notes, or otherwise, to any Buyer or holder of Securities, for or as an inducement to, or in connection with the solicitation of, any consent, waiver or amendment. of any terms or provisions of the Transaction Documents, unless such consideration is required to be paid to all Buyers or holders of Securities bound by such consent, waiver or amendment.  The Company shall not, directly or indirectly, redeem any Securities unless such offer of redemption is made pro rata to all Buyers or holders of Securities, as the case may be, on identical terms.  For clarification purposes, this provision constitutes a separate right granted by the Company to each Buyer of Securities and negotiated separately by each Buyer, is intended for the Company to treat the Buyers as a class, and shall not in any way be construed as the Buyers acting in concert or as a group with respect to the purchase, disposition or voting of Securities or otherwise.

(m)   

Legal And Due Diligence Fees.  The Company shall pay to BridgePointe Master Fund Ltd. (the “Lead Investor”) a non-accountable cash fee of $5,000 (which shall be paid at Closing)( the “Lead Investor’s Fee”) as reimbursement for legal services rendered by its attorneys in connection with this Agreement and the purchase and sale of the Grid Notes and as reimbursement for due diligence expenses.  The Lead Investor may withhold such amount out of the Purchase Price for its Grid Note.

(n)   

Limited Standstill. The Company will deliver to the Buyers on or before the Closing Date and enforce the provisions of irrevocable standstill agreements ("Limited Standstill Agreements") in the form annexed hereto as Exhibit N with Sass Peress, the Company’s President and CEO.
 

(o)  

Non-Public Information.  The Company covenants and agrees that from and after the date hereof, neither it nor any other Person acting on its behalf will knowingly provide any Buyer or its agents or counsel with any information that constitutes material non-public information, unless prior thereto such Buyer shall have executed a written agreement (a “Non-Public Information Agreement”) regarding the confidentiality and use of such information.  The Company understands and confirms that each Buyer shall be relying on the foregoing representations in effecting transactions in securities of the Company.  In the event that the Company, or any of its Subsidiaries, or any of its or their respective officers, directors, employees and agents, provides any Buyer or its agents or counsel with any information that constitutes material non-public information without obtaining a Non-Public Information Agreement from the Buyer, in addition to any other remedy provided herein or in the Transaction Documents, the Company shall publicly disclose any material, non-public information in a Form 8-K within five (5) Business Days of the date that it discloses such information to the Buyer.  In the event that the Company discloses any material, non-public information to the Buyer without an accompanying  Non-Public Information Agreement and fails to publicly file a Form 8-K in accordance with the above, a Buyer, upon three (3) Business Days advance written notice to the Company, shall have the right to make a public disclosure, in the form of a press release, public advertisement or otherwise, of such material, nonpublic information without the prior approval by the Company, its Subsidiaries, or any of its or their respective officers, directors, employees or agents.  No Buyer shall have any liability to the Company, its Subsidiaries, or any of its or their respective officers, directors, employees, stockholders or agents, for any such disclosure.  The Company understands and confirms that each Buyer shall be relying on the foregoing representations in effecting transactions in securities of the Company.

33

 (p)   

Inactive Subsidiaries.  For so long as any of the Grid Notes remain outstanding, the Company shall not transfer any assets to any Inactive Subsidiary, and will not activate any Inactive Subsidiary without the advance written permission of the Lead Investor.

(q)

Transactions With Affiliates.  Each existing Affiliate Transaction (as defined below) of the Company and or any Subsidiary is set forth on Schedule 4(q).  So long as any Grid Note is outstanding, the Company shall not, and shall cause each of its Subsidiaries not to, enter into, amend, modify or supplement, or permit any Subsidiary to enter into, amend, modify or supplement any Affiliate Transaction (as defined below) in each case in excess of $50,000, other than the existing Affiliate Transactions set forth on Schedule 4(q) (for any new Affiliate Transaction the value of which exceeds $50,000 and for any such existing Affiliate Transaction, the value of such amendment, modification or supplement which exceeds $50,000).  For purposes hereof, “Affiliate Transaction” shall mean any agreement, transaction, commitment, or arrangement, 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 best 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, with any of its or any Subsidiary’s officers, directors, employees, persons who were officers or directors at any time during the previous two (2) years, stockholders who beneficially own five percent (5%) or more of the Common Stock, or Affiliates (as defined below) of any thereof, or with any individual related by blood, marriage, or adoption to any such individual or with any entity in which any such entity or individual owns a five percent (5%) or more beneficial interest (each a “Related Party”), except for (i) customary employment arrangements and benefit programs on reasonable terms and (ii) reimbursement for expenses incurred on behalf of the Company, in each case without the permission of the Required Holders.  “Affiliate” for purposes hereof means, with respect to any person or entity, another person or entity that, directly or indirectly, (i) has a ten percent (10%) or more equity interest in that person or entity, (ii) has ten percent (10%) or more common ownership with that person or entity, (iii) controls that person or entity, or (iv) shares common control with that person or entity.  “Control” or “Controls” for purposes hereof means that a person or entity has the power, direct or indirect, to conduct or govern the policies of another person or entity.

34

(r)

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

5.  

SECURITY; SENIOR DEBT.  The Grid Notes are secured by the Security Agreement of the same date. Except as otherwise set forth on Schedule 5 annexed hereto, the Company hereby represents that the Holder has a senior lien on the Collateral (as defined in the Security Agreement), and agrees not to grant any liens on the Collateral, except for Permitted Liens.  From the Original Issue Date (as defined in the Grid Notes) of the Grid Notes through the date that all of the Grid Notes have been paid in full or converted in full, will not issue nor permit any Subsidiary to issue any securities or incur any indebtedness that is senior to or pari passu with the Grid Notes and, before entering into any future debt with a third party or permitting any Subsidiary to enter into any future debt with a third party (unless the issuance of such debt is otherwise prohibited under the terms of the Transaction Documents), the Company shall first obtain a subordination agreement, satisfactory to Buyer, from the proposed debt holder.  The Company agrees to take all necessary actions to assist the Holder in perfecting the Holder’s lien on each piece of Collateral within fifteen (15) days of the date hereof, including but not limiting to signing and delivering the appropriate forms.  

The Company hereby represents that, to its knowledge except as otherwise set forth on Schedule 5 annexed hereto, there are no liens or encumbrances on the Intellectual Property (as defined in Section 3(j)) or the Collateral.  The Company agrees that from the Original Issue Date of the Grid Notes through the date that all of the Grid Notes have been paid in full or converted in full (the “Covered Period”), the Company shall not enter into, create, incur, assume or suffer to exist any mortgage, lien, pledge, charge, security interest or other encumbrance (collectively, “Liens”) upon or in the Intellectual Property or the Collateral owned by the Company or any of its Subsidiaries and shall not assign or transfer any interest in the Patents owned by the Company or any of its Subsidiaries.  In the event that the Company attempts to place any Lien or Liens on the Intellectual Property or the Collateral or attempts to assign or transfer any interest in the Intellectual Property or the Collateral during the Covered Period, the Buyer shall have the right to apply for an injunction in any state or federal courts sitting in the City of New York, borough of Manhattan to prevent such Lien or transfer. Before entering into any future debt with a third party, the Company shall first obtain a subordination agreement, satisfactory to Buyer, from the proposed debt holder.  

35

6.   

LEGENDS.
 

(a)  

The Conversion Shares, together with any other shares of Common Stock that are issued or issuable pursuant to the Transaction Documents shall be referred to herein as the “Issued Common Shares.”  Certificates evidencing the Issued Common Shares shall not contain any legend restricting the transfer thereof (including the legend set forth in Section 3(e) of the Grid Notes): (i) following any sale of such Issued Common Shares pursuant to Rule 144, or (ii) if such Issued Common Shares are eligible for sale under Rule 144, or (iii) if such legend is not required under applicable requirements of the 1933 Act (including judicial interpretations and pronouncements issued by the staff of the Commission) (collectively, the “Unrestricted Conditions”). The Company shall cause its counsel to issue a legal opinion to the Company’s transfer agent promptly if required by the Company’s transfer agent to effect the issuance of Issued Common Shares without a restrictive legend or removal of the legend hereunder. If the Unrestricted Conditions are met at the time of issuance of Issued Common Shares, then such Issued Common Shares shall be issued free of all legends.  The Company agrees that at such time as the Unrestricted Conditions are met or such legend is otherwise no longer required under this Section 6(a), it will, no later than three (3) Trading Days following the delivery by a Buyer to the Company or the Company’s transfer agent of a certificate representing Issued Common Shares, as applicable, issued with a restrictive legend (such third Trading Day, the “Legend Removal Date”), deliver, or cause the Transfer Agent to deliver at the Company’s expense, to such Buyer a certificate representing such shares that is free from all restrictive and other legends.  

(b)   

In addition to such Buyer’s other available remedies, the Company shall pay to a Buyer, in cash, as partial liquidated damages and not as a penalty, for each $1,000 of Underlying Shares (based on the VWAP of the Common Stock on the date such Securities are submitted to the Transfer Agent) delivered for removal of the restrictive legend and subject to Section 6(a), $10 per Trading Day (increasing to $20 per Trading Day five (5) Trading Days after such damages have begun to accrue) for each Trading Day after the Legend Removal Date until such certificate is delivered without a legend (the “Legend Removal Failure Liquidated Damages”).  Nothing herein shall limit such Buyer’s right to pursue actual damages for the Company’s failure to deliver certificates representing any Securities as required by the Transaction Documents, and such Buyer shall have the right to pursue all remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief.

(c)   

Each Buyer, severally and not jointly with the
other Buyers, agrees that the removal of the restrictive legend from
certificates representing Securities as set forth in this Section 6 is
predicated upon the Company’s reliance that each Buyer will sell any Securities
pursuant to either the registration requirements of the 1933 Act, including any
applicable prospectus delivery requirements, or an exemption therefrom, and that
if Securities are sold pursuant to a registration statement, they will be sold
in compliance with the plan of distribution set forth therein.  

36

7.

CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. The obligation of the Company hereunder to issue and sell the Grid Notes to a Buyer at the Closing is subject to the satisfaction, at or before the Closing Date, of each of the following conditions thereto, provided that these conditions are for the Company's sole benefit and may be waived by the Company at any time in its sole discretion:

(a)   

The Buyer shall have delivered the applicable
Purchase Price in accordance with Section 1(b) above to the Company.

(b)      

The representations and warranties of the Buyer
shall be true and correct in all material respects as of the date when made and
as of the applicable Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date, which
representations and warranties shall be true and correct as of such date), and
the Buyer shall have performed, satisfied and complied in all material respects
with the covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by the Buyer at or prior to the Closing
Date.

(c)   

No litigation, statute, rule, regulation,
executive order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by or in any court or governmental authority of
competent jurisdiction or any self-regulatory organization having authority over
the matters contemplated hereby which prohibits the consummation of any of the
transactions contemplated by this Agreement.

8.

CONDITIONS TO BUYER'S OBLIGATION TO PURCHASE. The Buyer’s  purchase of the Grid Note at each Closing is subject to the satisfaction, at or before the Closing Date, of each of the following conditions, provided that these conditions are for such Buyer's sole benefit and may be waived by such Buyer at any time in its sole discretion:

(a)  

The Company shall have executed this Agreement and
the Security Documents, and delivered the same to the Buyer.

(b)  

The Company shall have delivered to such Buyer the
duly executed Grid Note in accordance with Section 1 above.

(c)  

The representations and warranties of the Company contained in this Agreement, as modified by the Exhibits and Schedules hereto, shall be true and correct in all material respects as of the date when made and as of the Closing Date as though made at such time (except for representations and warranties that speak as of a specific date, which representations and warranties shall be true and correct as of such date) and the Company shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Company at or prior to the Closing Date. The Buyer shall have received a certificate or certificates (the “Officer’s Certificate”), executed by the President and Chief Executive Officer of the Company, dated as of the applicable Closing Date, to the foregoing effect and Board of Directors' resolutions relating to the transactions contemplated hereby.

37

(d)  

No litigation, statute, rule, regulation,
executive order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by or in any court or governmental authority of
competent jurisdiction or any self-regulatory organization having authority over
the matters contemplated hereby which prohibits the consummation of any of the
transactions contemplated by this Agreement.

(e)  

Trading in the Common Stock on the Principal Market shall not have been suspended by the SEC or the Nasdaq and, within two (2) Business Days of the Closing, the Company will make application to the Principal Market, if legally required by Nasdaq, to have the Conversion Shares authorized for quotation.

(f)    

The Buyer shall have received a Closing Certificate described in Section 1(b)(v)(B) above, dated as of the Closing Date.

(g)   

In accordance with the terms of the Security Documents, the Company shall have delivered to the Buyer (i) the Security Agreement signed by the Company and each of its subsidiaries, (ii) the Subsidiary Guarantee, duly executed by each of the Company’s Active Subsidiaries, (iii) certificates representing the Active Subsidiaries' shares of capital stock, along with duly executed blank stock powers, (iv) appropriate financing statements on Form UCC-1 to be duly filed in such office or offices as may be necessary or, in the opinion of the Collateral Agent, desirable to perfect the security interests purported to be created by each Security Document and (v) the Patent Security Agreement, duly executed by the Company.

(h)   

Prior to the Closing, the Company shall have delivered or caused to be delivered to each Buyer (A) certified copies of UCC search results, listing all effective financing statements which name as debtor the Company or any of its Subsidiaries filed in the prior five (5) years to perfect an interest in any assets thereof, together with copies of such financing statements, none of which, except as otherwise agreed in writing by the Buyers, shall cover any of the Collateral (as defined in the Security Documents) and the results of searches for any tax lien and judgment lien filed against such Person or its property, which results, except as otherwise agreed to in writing by the Buyers shall not show any such Liens (as defined in the Security Documents); and (B) a perfection certificate, duly completed and executed by the Company and each of its Subsidiaries, in form and substance satisfactory to the Buyers.

(i)    

The Company shall have received funds from Buyers
representing their respective Purchase Prices not exceeding their Buyer Limit,
individually and not exceeding the Maximum Offering Amount, in an aggregate
amount.
 

(j)    

No Material Adverse Changes have occurred since
the date that the Buyer executed this Agreement.

38

9.

GOVERNING LAW; MISCELLANEOUS.

(a) 

 Governing Law.  All questions concerning the construction, validity, enforcement and interpretation of this Agreement and the other Transaction Documents shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof.  Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement and any other Transaction Documents (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York.  Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper or is an inconvenient venue for such proceeding.  Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof.  Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law.  If either party shall commence an action or proceeding to enforce any provisions of the Transaction Documents, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its reasonable attorneys’ fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action or proceeding.  THE PARTIES HEREBY WAIVE ALL RIGHTS TO, AND AGREES NOT TO REQUEST, A TRIAL BY JURY FOR ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY OR BY ANY OF THE TRANSACTION DOCUMENTS.  

(b)   

Counterparts; Signatures By Facsimile. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party. This Agreement, once executed by a party, may be delivered to the other party hereto by facsimile transmission of a copy of this Agreement bearing the signature of the party so delivering this Agreement.

(c)    

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

(d)   

Severability. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement or the validity or enforceability of this Agreement in any other jurisdiction.

39

(e)

  Entire Agreement; Amendments. This Agreement and the instruments referenced herein contain the entire understanding of the parties with respect to the matters covered herein and therein and supersede all previous communication, representation, or Agreements whether oral or written, between the parties with respect to the matters covered herein. Except as specifically set forth herein or therein, neither the Company nor any Buyer makes any representation, warranty, covenant or undertaking with respect to such matters.  The Agreement may not be orally modified. Only a modification in writing, signed by authorized representatives of 
each party hereto will be enforceable.  The parties waive the right to rely on any oral representations made by the other party, whether in the past or in the future, regarding the subject matter of the Agreement, the instruments referenced herein or any other dealings between the parties related to investments or potential investments into the Company or any securities transactions or potential securities transactions with the Company.

(f)

Independent Nature of Buyers’ Obligations And Rights.  The obligations of each Buyer under any Transaction Document are several and not joint with the obligations of any other Buyer, and no Buyer shall be responsible in any way for the performance of the obligations of any other Buyer under any Transaction Document.  Nothing contained herein or in any Transaction Document, and no action taken by any Buyer pursuant thereto, shall be deemed to constitute the Buyers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Buyers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Documents.  Each Buyer shall be entitled to independently protect and enforce its rights, including without limitation, the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Buyer to be joined as an additional party in any proceeding for such purpose.  Each Buyer has been represented by its own separate legal counsel in its review and negotiation of the Transaction Documents.  

(g)

  Notices. Any notices required or permitted to be given under the terms of this Agreement shall be sent by certified or registered mail (return receipt requested) or delivered personally or by courier (including a recognized overnight delivery service) or by facsimile and shall be effective five (5) days after being placed in the mail, if mailed by regular United States mail, or upon receipt, if delivered personally or by courier (including a recognized overnight delivery service) or by facsimile, in each case addressed to a party. The addresses for such communications shall be:

If to the Company, to:

Attn:  Sass Peress, CEO,  President  & Chairman

ICP Solar Technologies, Inc.

7075 Place Robert - Joncas

Montreal, H4M272

Telephone: 514-270-5770

Fax: (514) 270-3677

If to a Buyer: To the address set forth immediately below such

Buyer's name on the signature pages hereto.

40

Each party shall provide notice to the other party of any change in address.

(h)

Successors And Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and assigns. Neither the Company nor any Buyer shall assign this Agreement or any rights or obligations hereunder without the prior written consent of the other. Notwithstanding the foregoing, subject to Section 2(e), Buyer may assign, following written notice to the Company, its rights hereunder to any person that purchases Securities in a private transaction from a Buyer or to any of its "Affiliates," as that term is defined under the 1934 Act, without the consent of the Company.

(i)

Third Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other person.

(j)   

Survival. The representations and warranties of the parties hereto contained in this Agreement shall survive the closing hereunder for the maximum period permitted by applicable law notwithstanding any due diligence investigation conducted by or on behalf of the Buyer.
 

(k)

Indemnification.  The Company (the “Indemnifying Party”) agrees to indemnify and hold harmless each Buyer and all its respective officers, directors, employees, investors, agents, members and managers (the “Indemnified Party”) for any loss or damage, including without limitation, the fees, costs, and disbursements of legal counsel, arising as a result of or related to any breach by the Company of any of its representations, warranties and covenants set forth in Sections 3 and 4 hereof or any of its covenants and obligations under this Agreement, including advancement of expenses as they are incurred with respect to claims by third parties.

Promptly after receipt of notice of the commencement of any action against an Indemnified Party, such Indemnified Party shall notify the Indemnifying Party in writing of the commencement thereof and the basis hereunder upon which a claim for indemnification is asserted, but the failure to do so shall not relieve the Indemnifying Party of its obligations hereunder except to the extent the Indemnifying Party is materially prejudiced by such failure. In the event of the commencement of any such action, the Indemnifying Party shall be entitled to participate therein and to assume the defense thereof with counsel reasonably satisfactory to the Indemnified Party, and, after notice from the Indemnifying Party to the Indemnified Party of its election so to assume the defense thereof, the Indemnifying Party shall not be liable to the Indemnified Party hereunder for any legal expenses (including attorneys' fees, costs and disbursements) subsequently incurred by such Indemnified Party in connection with the defense thereof other than reasonable costs of investigation and of liaison with counsel so selected, PROVIDED, HOWEVER, that, if the defendants in any such action include both the Indemnified Party and the Indemnifying Party and the Indemnified Party shall have reasonably concluded that there may be reasonable defenses available to it which are different from or additional to those available to the Indemnifying Party or if the interests of the Indemnified Party reasonably may be deemed to conflict with the interests of the Indemnifying Party, the Indemnified Party shall have the right to select one separate counsel and to assume such legal defenses and otherwise to participate in the defense of such action, with the reasonable expenses and fees of such separate counsel and other expenses related to such participation to be reimbursed by the Indemnifying Party as incurred.
 

41

As to cases in which the Indemnifying Party has assumed and is providing the defense for the Indemnified Party, the control of such defense shall be vested in the Indemnifying Party; provided that the consent of the Indemnified Party shall be required prior to any settlement of such case or action, which consent shall not be unreasonably withheld. As to any action, the party which is controlling such action shall provide to the other party reasonable information (including reasonable advance notice of all proceedings and depositions in respect thereto) regarding the conduct of the action and the right to attend all proceedings and depositions in respect thereto through its agents and attorneys, and the right to discuss the action with counsel for the party controlling such action.
 

(l)   

Publicity. The Company and the Buyer shall have the right to review a reasonable period of time before issuance of any press releases, filings with the SEC, FINRA or any stock exchange or interdealer quotation system, or any other public statements with respect to the transactions contemplated hereby; PROVIDED, HOWEVER, that the Company shall be entitled, without the prior approval of the Buyer, to make any press release or public filings with respect to such transactions as is required by applicable law and regulations (although whenever possible the Buyer shall be consulted by the Company in connection with any such press release prior to its release and shall be provided with a copy thereof and be given an opportunity to comment thereon). The Company agrees that it will not disclose, and will not include in any public announcement, the name of the Buyers without the consent of the Buyers unless and until such disclosure is required by law or applicable regulation, and then only to the extent of such requirement.

(m)

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

(n)

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

(o)   

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

42

(p)

Remedies. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to Buyer, by vitiating the intent and purpose of the transactions contemplated hereby. Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Agreement will be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Agreement, that Buyer shall be entitled, in addition to all other available remedies in law or in equity, to seek an injunction or injunctions to prevent or cure any breaches of the provisions of this Agreement and to enforce specifically the terms and provisions of this Agreement, without the necessity of showing economic loss and without any bond or other security being required.

(p)

Breach of Agreement.  Any breach by the Company of the agreements or covenants in this Agreement shall constitute an Event of Default under the Grids Notes and under the 2008 Debentures.

10.  

AMENDMENT TO 2008 DEBENTURE AND 2008 SECURITIES PURCHASE AGREEMENTS.  

(a)  

Amendment to 2008 Securities Purchase Agreements.  The definition of “Exempt Issuance” in each of the 2008 Securities Purchase Agreements is hereby amended to replace the words:

 “ . . .75% of the initial Conversion Price . . .”
 

with the words  

“ . . .100% of the initial Conversion Price . . .”

(b)  

Amendments to 2008 Debentures.  

(1) 

Any breach by the Company of the agreements or
covenants in this Line of Credit Agreement shall constitute an Event of Default
under the 2008 Debentures.

(2) 

The following words in the first sentence of
Section 6 of each of the 2008 Debentures are hereby deleted:

“ . . .but excluding shares of Common Stock deemed to have been issued by the Company in connection with an Exempt Issuance . . .”

Except as set forth in this Section 10, the terms
of the 2008 Debentures and the Initial Transaction Documents remain unamended
and in full force and effect. 

The undersigned acknowledges that this Agreement
shall not be effective unless accepted by the Company as indicated below.

[INTENTIONALLY LEFT BLANK]

43

IN WITNESS WHEREOF, the undersigned Buyer does represent and certify under penalty of perjury that the foregoing statements are true and correct and that Buyer by the following signature(s) executed this Agreement.

Dated this 8th day of October, 2009.

	 	 	 
	
    
    Your Signature
	 	
    PRINT EXACT NAME IN WHICH YOU WANT
	 	 	
    THE SECURITIES TO BE REGISTERED
	 	 	 
	 	 	 
	 	 	 
	
    Buyer’s Entity Type and Residency:
    _________________	 	
    .
	 	 	 
	 	 	 	
    DELIVERY INSTRUCTIONS:
	
    Name: Please Print	 	
    Please type or print address where
    your security is to be delivered
	 	 	 
	 	 	 	
    ATTN.:
	
    Title/Representative Capacity (if
    applicable)	 	 
	 	 	 
	 	 	 	 
	
    Name of Company You Represent (if
    applicable)	 	
    Street Address
	 	 	 
	 	 	 	 
	
    Place of Execution of this Agreement	 	
    
    City, State or Province, Country, Offshore Postal Code

__________________________________________________ 

Phone Number (For Federal Express) and Fax Number (re: Notice) 

ICP Solar Technologies, Inc.

By:________________________________

Print Name:______________________________

Title:_______________________________

 

44

SCHEDULE OF BUYERS OF ICP SOLAR TECHNOLOGIES, INC. GRID NOTES

  
	
  
  Buyer

	
  
  Pro-Rata Percentage

	
  
  BridgePointe Master Fund Ltd., a Cayman Islands Exempted Company

	

67.01%

	

Gemini Master Fund, Ltd., a Cayman Islands company

	

22.34%

	
  
  Platinum Long Term Growth VI, LLC, a Cayman Islands Exempted Company

	

10.65%

  

 

 

45ICP Solar Technologies, Inc.: Exhibit 10.2 - Prepared by TNT Filings
   Inc.

Exhibit 10.2

SUBSIDIARY GUARANTEE 

     SUBSIDIARY
GUARANTEE, dated as of October 8, 2009 (this “Guarantee”), made by each of the signatories
hereto (together with any other entity that may become a party hereto as
provided herein, the “Guarantors”), in favor of the purchasers signatory (the “Purchasers” or the “Secured Parties”) to that certain Line of
Credit Agreement, dated as of the date hereof, between ICP Solar Technologies,
Inc., a Nevada corporation (the “Company”) and the Purchasers.

W I T N E S S E T H: 

     WHEREAS,
pursuant to that certain Line of Credit Agreement, dated as of the date hereof,
by and between the Company and the Purchasers (the “Purchase Agreement”), the Company has agreed to sell
and issue to the Purchasers, and the Purchasers have agreed to purchase from the
Company the Company’s Grid Notes, due October 1, 2010, and to be issued within
six months from the date of this Agreement in the original aggregate principal
amount of up to $888,000 (the “Grid Notes”), subject to the terms and conditions set forth therein; and

WHEREAS, each Guarantor will directly benefit
from the extension of credit to the Company represented by the issuance of the
Grid Notes; and

NOW, THEREFORE, in consideration of the
premises and to induce the Purchasers to enter into the Purchase Agreement and
to carry out the transactions contemplated thereby, each Guarantor hereby agrees
with the Purchasers as follows: 

     1.   Definitions. Unless otherwise defined herein, terms defined in the Purchase
Agreement and used herein shall have the meanings given to them in the Purchase
Agreement. The words “hereof,” “herein,” “hereto” and “hereunder” and words of
similar import when used in this Guarantee shall refer to this Guarantee as a
whole and not to any particular provision of this Guarantee, and Section and
Schedule references are to this Guarantee unless otherwise specified. The
meanings given to terms defined herein shall be equally applicable to both the
singular and plural forms of such terms. The following terms shall have the
following meanings: 

     “Debtors” means the Company and any Guarantor. 

     “Guarantee” means
this Subsidiary Guarantee, as the same may be amended, supplemented or otherwise
modified from time to time. 

     “Obligations” means,
in addition to all other costs and expenses of collection incurred by Purchasers
in enforcing any of such Obligations and/or this Guarantee, all of the
liabilities and obligations (primary, secondary, direct, contingent, sole, joint
or several) due or to become due, or that are now or may be hereafter contracted
or acquired, or owing to, of any Debtor to the Secured Parties, including,
without limitation, all obligations under this Agreement, the Grid Notes, this
Guarantee and any other instruments, agreements or other documents executed
and/or delivered in connection herewith or therewith, in each case, whether now
or hereafter existing, voluntary or involuntary, direct or indirect, absolute or
contingent, liquidated or unliquidated, whether or not jointly owed with others,
and whether or not from time to time decreased or extinguished and later
increased, created or incurred, and all or any portion of such obligations or
liabilities that are paid, to the extent all or any part of such payment is
avoided or recovered directly or indirectly from any of the Secured Parties as a
preference, fraudulent transfer or otherwise as such obligations may be amended,
supplemented, converted, extended or modified from time to time. Without
limiting the generality of the foregoing, the term “Obligations” shall include,
without limitation: (i) Principal Amount of the Grid Notes (as defined in the
Grid Notes) and the loans extended pursuant thereto; (ii) any and all other
fees, indemnities, costs, obligations and liabilities of the Debtors from time
to time under or in connection with this Agreement, the Grid Notes, the
Guarantee, the other Transaction Documents and any other instruments, agreements
or other documents executed and/or delivered in connection herewith or
therewith; and (iii) all amounts (including but not limited to post-petition
interest) in respect of the foregoing that would be payable but for the fact
that the obligations to pay such amounts are unenforceable or not allowable due
to the existence of a bankruptcy, reorganization or similar proceeding involving
any Debtor.

1

     “Transaction Documents” shall have the meaning ascribed to it in the
Purchase Agreement. 

	2. 	Guarantee.
  

	 	(a) 	Guarantee.
  

     (i) The
Guarantors hereby, jointly and severally, unconditionally and irrevocably,
guarantee to each Purchaser and each of their respective successors, indorsees,
transferees and assigns, the prompt and complete payment and performance by the
Company when due (whether at the stated maturity, by acceleration or otherwise)
of the Obligations.

     (ii) Anything
herein or in any other Transaction Document to the contrary notwithstanding, the
maximum liability of each Guarantor hereunder and under the other Transaction
Documents shall in no event exceed the amount which can be guaranteed by such
Guarantor under applicable federal and state laws, including laws relating to
the insolvency of debtors, fraudulent conveyance or transfer or laws affecting
the rights of creditors generally (after giving effect to
the right of contribution established in Section 2(b)).

2

     (iii) Each
Guarantor agrees that the Obligations may at any time and from time to time
exceed the amount of the liability of such Guarantor hereunder without impairing
the guarantee contained in this Section 2 or affecting the rights and remedies
of the Purchasers hereunder. 

     (iv) The
guarantee contained in this Section 2 shall remain in full force and effect
until all the Obligations and the obligations of each Guarantor under the
guarantee contained in this Section 2 shall have been satisfied by payment in
full.

     (v) No payment
made by the Company, any of the Guarantors, any other guarantor or any other
Person or received or collected by the Purchasers from the Company, any of the
Guarantors, any other guarantor or any other Person by virtue of any action or
proceeding or any set-off or appropriation or application at any time or from
time to time in reduction of or in payment of the Obligations shall be deemed to
modify, reduce, release or otherwise affect the liability of any Guarantor
hereunder which shall, notwithstanding any such payment (other than any payment
made by such Guarantor in respect of the Obligations or any payment received or
collected from such Guarantor in respect of the Obligations), remain liable for
the Obligations up to the maximum liability of such Guarantor hereunder until
the Obligations are paid in full. 

     (vi) Notwithstanding anything to the contrary in this Agreement, with
respect to any defaulted non-monetary Obligations the specific performance of
which by the Guarantors is not reasonably possible (e.g. the issuance of the
Company's Common Stock), the Guarantors shall only be liable for making the
Purchasers whole on a monetary basis for the Company's failure to perform such
Obligations in accordance with the Transaction Documents.

     (b) Right of
Contribution. Each Guarantor hereby agrees that to the
extent that a Guarantor shall have paid more than its proportionate share of any
payment made hereunder, such Guarantor shall be entitled to seek and receive
contribution from and against any other Guarantor hereunder which has not paid
its proportionate share of such payment. Each Guarantor's right of contribution
shall be subject to the terms and conditions of Section 2(c). The provisions of
this Section 2(b) shall in no respect limit the obligations and liabilities of
any Guarantor to any Purchaser, and each Guarantor shall remain liable to each
Purchaser for the full amount guaranteed by such Guarantor hereunder.

3

     (c) No
Subrogation. Notwithstanding any payment made by any
Guarantor hereunder or any set-off or application of funds of any Guarantor by
any Purchaser, no Guarantor shall be entitled to be subrogated to any of the
rights of any Purchaser against the Company or any other Guarantor or any
collateral security or guarantee or right of offset held by any Purchaser for
the payment of the Obligations, nor shall any Guarantor seek or be entitled to
seek any contribution or reimbursement from the Company or any other Guarantor
in respect of payments made by such Guarantor hereunder, until all amounts owing
to the Purchasers by the Company on account of the Obligations are paid in full.
If any amount shall be paid to any Guarantor on account of such subrogation
rights at any time when all of the Obligations shall not have been paid in full,
such amount shall be held by such Guarantor in trust for the Purchasers,
segregated from other funds of such Guarantor, and shall, forthwith upon receipt
by such Guarantor, be turned over to the Purchasers in the exact form received
by such Guarantor (duly indorsed by such Guarantor to the Purchasers, if
required), to be applied against the Obligations, whether matured or unmatured,
in such order as the Purchasers may determine. 

     (d) Amendments,
Etc. With Respect to the Obligations. Each Guarantor
shall remain obligated hereunder notwithstanding that, without any reservation
of rights against any Guarantor and without notice to or further assent by any
Guarantor, any demand for payment of any of the Obligations made by the
Purchasers may be rescinded by the Purchasers and any of the Obligations
continued, and the Obligations, or the liability of any other Person upon or for
any part thereof, or any collateral security or guarantee therefor or right of
offset with respect thereto, may, from time to time, in whole or in part, be
renewed, extended, amended, modified, accelerated, compromised, waived,
surrendered or released by the Purchasers, and the Purchase Agreement and the
other Transaction Documents and any other documents executed and delivered in
connection therewith may be amended, modified, supplemented or terminated, in
whole or in part, as the Purchasers may deem advisable from time to time, and
any collateral security, guarantee or right of offset at any time held by the
Purchasers for the payment of the Obligations may be sold, exchanged, waived,
surrendered or released. No Purchaser shall have any obligation to protect,
secure, perfect or insure any Lien at any time held by them as security for the
Obligations or for the guarantee contained in this Section 2 or any property
subject thereto.

4

     (e) Guarantee
Absolute and Unconditional. Each Guarantor waives any
and all notice of the creation, renewal, extension or accrual of any of the
Obligations and notice of or proof of reliance by any Purchasers upon the
guarantee contained in this Section 2 or acceptance of the guarantee contained
in this Section 2; the Obligations, and any of them, shall conclusively be
deemed to have been created, contracted or incurred, or renewed, extended,
amended or waived, in reliance upon the guarantee contained in this Section 2;
and all dealings between the Company and any of the Guarantors, on the one hand,
and the Purchasers, on the
other hand, likewise shall be conclusively presumed to have been had or
consummated in reliance upon the guarantee contained in this Section 2. Each
Guarantor waives to the extent permitted by law diligence, presentment, protest,
demand for payment and notice of default or nonpayment to or upon the Company or
any of the Guarantors with respect to the Obligations. Each Guarantor
understands and agrees that the guarantee contained in this Section 2 shall be
construed as a continuing, absolute and unconditional guarantee of payment
without regard to (a) the validity or enforceability of the Purchase Agreement
or any other Transaction Document, any of the Obligations or any other
collateral security therefor or guarantee or right of offset with respect
thereto at any time or from time to time held by the Purchasers, (b) any
defense, set-off or counterclaim (other than a defense of payment or performance
or fraud or misconduct by any Purchasers) which may at any time be available to
or be asserted by the Company or any other Person against any Purchasers, or (c)
any other circumstance whatsoever (with or without notice to or knowledge of the
Company or such Guarantor) which constitutes, or might be construed to
constitute, an equitable or legal discharge of the Company for the Obligations,
or of such Guarantor under the guarantee contained in this Section 2, in
bankruptcy or in any other instance. When making any demand hereunder or
otherwise pursuing its rights and remedies hereunder against any Guarantor, a
Purchasers may, but shall be under no obligation to, make a similar demand on or
otherwise pursue such rights and remedies as they may have against the Company,
any other Guarantor or any other Person or against any collateral security or
guarantee for the Obligations or any right of offset with respect thereto, and
any failure by such Purchaser to make any such demand, to pursue such other
rights or remedies or to collect any payments from the Company, any other
Guarantor or any other Person or to realize upon any such collateral security or
guarantee or to exercise any such right of offset, or any release of the
Company, any other Guarantor or any other Person or any such collateral
security, guarantee or right of offset, shall not relieve any Guarantor of any
obligation or liability hereunder, and shall not impair or affect the rights and
remedies, whether express, implied or available as a matter of law, of the
Purchasers against any Guarantor. For the purposes hereof, “demand” shall
include the commencement and continuance of any legal proceedings. 

     (f) Reinstatement. The guarantee contained in
this Section 2 shall continue to be effective, or be reinstated, as the case may
be, if at any time payment, or any part thereof, of any of the Obligations is
rescinded or must otherwise be restored or returned by the Purchasers upon the
insolvency, bankruptcy, dissolution, liquidation or reorganization of the
Company or any Guarantor, or upon or as a result of the appointment of a
receiver, intervenor or conservator of, or trustee or similar officer for, the
Company or any Guarantor or any substantial part of its property, or otherwise,
all as though such payments had not been made. 

5

     (g) Payments. Each Guarantor hereby guarantees
that payments hereunder will be paid to the Purchasers without set-off or
counterclaim in U.S. dollars at the address set forth or referred to in the
Purchase Agreement. 

     3. Representations and
Warranties. Each Guarantor hereby makes the following
representations and warranties to Purchasers as of the date hereof: 

     (a) Organization
and Qualification. The Guarantor is a corporation, duly
incorporated, validly existing and in good standing under the laws of the
applicable jurisdiction set forth on Schedule 1, with the requisite corporate
power and authority to own and use its properties and assets and to carry on its
business as currently conducted. The Guarantor has no subsidiaries other than
those identified as such on the Disclosure Schedules to the Purchase Agreement.
The Guarantor is duly qualified to do business and is in good standing as a
foreign corporation 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, (x) adversely affect the legality,
validity or enforceability of any of this Guarantee in any material respect, (y)
have a material adverse effect on the results of operations, assets, prospects,
or financial condition of the Guarantor or (z) adversely impair in any material
respect the Guarantor's ability to perform fully on a timely basis its
obligations under this Guarantee (a “Material Adverse
Effect”). 

     (b) Authorization; Enforcement. The Guarantor has
the requisite corporate power and authority to enter into and to consummate the
transactions contemplated by this Guarantee, and otherwise to carry out its
obligations hereunder. The execution and delivery of this Guarantee by the
Guarantor and the consummation by it of the transactions contemplated hereby
have been duly authorized by all requisite corporate action on the part of the
Guarantor. This Guarantee has been duly executed and delivered by the Guarantor
and constitutes the valid and binding obligation of the Guarantor enforceable
against the Guarantor 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. 

     (c) No
Conflicts. The execution, delivery and performance of
this Guarantee by the Guarantor and the consummation by the Guarantor of the
transactions contemplated thereby do not and will not (i) conflict with or
violate any provision of its Certificate of Incorporation or By-Laws or (ii)
conflict with, constitute a default (or an event which with notice or lapse of
time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument to which the Guarantor is a
party, 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 Guarantor is subject (including Federal and state
securities laws and regulations), or by which any material property or asset of
the Guarantor is bound or affected, except in the case of each of clauses (ii)
and (iii), such conflicts, defaults, terminations, amendments, accelerations,
cancellations and violations as could not, individually or in the aggregate,
have or result in a Material Adverse Effect. The business of the Guarantor is
not being conducted in violation of any law, ordinance or regulation of any
governmental authority, except for violations which, individually or in the
aggregate, do not have a Material Adverse Effect. 

6

     (d) Consents and
Approvals. The Guarantor is not required to obtain any
consent, waiver, authorization or order of, or make any filing or registration
with, any court or other federal, state, local, foreign or other governmental
authority or other person in connection with the execution, delivery and
performance by the Guarantor of this Guarantee. 

     (e) Purchase
Agreement. The representations and warranties of the
Company set forth in the Purchase Agreement as they relate to such Guarantor,
each of which is hereby incorporated herein by reference, are true and correct
as of each time such representations are deemed to be made pursuant to such
Purchase Agreement, and the Purchasers shall be entitled to rely on each of them
as if they were fully set forth herein, provided that each reference in each
such representation and warranty as they relate to such Guarantor to the
Company's knowledge shall, for the purposes of this Section 3, be deemed to be a
reference to such Guarantor's knowledge.

     (f) Foreign
Law. Each Guarantor has consulted with appropriate
foreign legal counsel with respect to any of the above representations for which
non-U.S. law is applicable. Such foreign counsel have advised each applicable
Guarantor that such counsel knows of no reason why any of the above
representations would not be true and accurate. Such foreign counsel were
provided with copies of this Subsidiary Guarantee and the Transaction Documents
prior to rendering their advice.

4. Covenants.

     (a) Each Guarantor covenants and agrees
with the Purchasers that, from and after the date of this Guarantee until the
Obligations shall have been paid in full, such Guarantor shall take, and/or
shall refrain from taking, as the case may be, each commercially reasonable
action that is necessary to be taken or not taken, as the case may be, so that
no Event of Default is caused by the failure to take such action or to refrain
from taking such action by such Guarantor.

7

     (b) So long as any of the Obligations are
outstanding, unless Purchasers holding at least 75% of the aggregate principal
amount of the then outstanding Grid Notes shall otherwise consent in writing,
each Guarantor will not directly or indirectly on or after the date of this
Guarantee: 

     i. except with
respect to Permitted Indebtedness, enter into, create, incur, assume or suffer
to exist any indebtedness for borrowed money of any kind, including but not
limited to, a guarantee, on or with respect to any of its property or assets now
owned or hereafter acquired or any interest therein or any income or profits
therefrom; 

     ii. except with
respect to Permitted Liens, enter into, create, incur, assume or suffer to exist
any liens of any kind, on or with respect to any of its property or assets now
owned or hereafter acquired or any interest therein or any income or profits
therefrom; 

     iii. amend its
certificate of incorporation, bylaws or other charter documents so as to
adversely affect any rights of the Holder hereunder; 

     iv. repay,
repurchase or offer to repay, repurchase or otherwise acquire more than a de
minimis number of shares of its securities or debt obligations;

     v. pay cash
dividends on any equity securities of the Company; 

     vi. enter into
any transaction with any Affiliate of the Guarantor which would be required to
be disclosed in any public filing of the Company with the Commission, unless
such transaction is made on an arm’s-length basis and expressly approved by a
majority of the disinterested directors of the Company (even if less than a
quorum otherwise required for board approval); or 

     vii. enter into
any agreement with respect to any of the foregoing. 

5. Miscellaneous. 

     (a) Amendments in Writing. None of the terms or provisions of this Guarantee may be waived,
amended, supplemented or otherwise modified except in writing signed by the
Required Holders (as defined in the Grid Note) and the Guarantor. 

8

     (b) Notices. All notices, requests and demands to
or upon the Purchasers or any Guarantor hereunder shall be effected in the
manner provided for in the Purchase Agreement, provided that any such notice,
request or demand to or upon any Guarantor shall be addressed to such Guarantor
at its notice address set forth on Schedule
5(b). 

     (c) No Waiver By
Course Of Conduct; Cumulative Remedies. The Purchasers
shall not by any act (except by a written instrument pursuant to Section 5(a)),
delay, indulgence, omission or otherwise be deemed to have waived any right or
remedy hereunder or to have acquiesced in any default under the Transaction
Documents or Event of Default. No failure to exercise, nor any delay in
exercising, on the part of the Purchasers, any right, power or privilege
hereunder shall operate as a waiver thereof. No single or partial exercise of
any right, power or privilege hereunder shall preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. A
waiver by the Purchasers of any right or remedy hereunder on any one occasion
shall not be construed as a bar to any right or remedy which the Purchasers
would otherwise have on any future occasion. The rights and remedies herein
provided are cumulative, may be exercised singly or concurrently and are not
exclusive of any other rights or remedies provided by law. 

     (d)
Enforcement Expenses; Indemnification. 

     (i) Each
Guarantor agrees to pay, or reimburse the Purchasers for all their respective
costs and expenses incurred in collecting against such Guarantor under the
guarantee contained in Section 2 or otherwise enforcing or preserving any rights
under this Guarantee and the other Transaction Documents to which such Guarantor
is a party, including, without limitation, the reasonable fees and disbursements
of counsel to the Purchasers. 

     (ii) Each
Guarantor agrees to pay, and to save the Purchasers harmless from, any and all
liabilities with respect to, or resulting from any delay in paying, any and all
stamp, excise, sales or other taxes which may be payable or determined to be
payable in connection with any of the transactions contemplated by this
Guarantee. 

     (iii) Each
Guarantor agrees to pay, and to save the Purchasers harmless from, any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever with respect
to the execution, delivery, enforcement, performance and administration of this
Guarantee to the extent the Company would be required to do so pursuant to the
Purchase Agreement. 

9

     (iv) The
agreements in this Section shall survive repayment of the Obligations and all
other amounts payable under the Purchase Agreement and the other Transaction
Documents.

     (e) Successor
and Assigns. This Guarantee shall be binding upon the
successors and assigns of each Guarantor and shall inure to the benefit of each
Purchaser and each of their respective successors and assigns; provided that no
Guarantor may assign, transfer or delegate any of its rights or obligations
under this Guarantee without the prior written consent of the Purchasers.

     (f) Set-Off. Each Guarantor hereby irrevocably
authorizes the Purchasers at any time and from time to time while an Event of
Default under any of the Transaction Documents shall have occurred and be
continuing, without notice to such Guarantor or any other Guarantor, any such
notice being expressly waived by each Guarantor, to set-off and appropriate and
apply any and all deposits, credits, indebtedness or claims, in any currency, in
each case whether direct or indirect, absolute or contingent, matured or
unmatured, at any time held or owing by any Purchasers to or for the credit or
the account of such Guarantor, or any part thereof in such amounts as such
Purchaser may elect, against and on account of the obligations and liabilities
of such Guarantor to such Purchasers hereunder and claims of every nature and
description of such Purchaser against such Guarantor, in any currency, whether
arising hereunder, under the Purchase Agreement, any other Transaction Document
or otherwise, as the Purchaser may elect, whether or not such Purchaser have
made any demand for payment and although such obligations, liabilities and
claims may be contingent or unmatured. A Purchaser shall notify such Guarantor
promptly of any such set-off and the application made by such Purchaser of the
proceeds thereof, provided that the failure to give such notice shall not affect
the validity of such set-off and application. The rights of the Purchasers under
this Section are in addition to other rights and remedies (including, without
limitation, other rights of set-off) which any Purchaser may have. 

     (g) Counterparts. This Guarantee may be executed
by one or more of the parties to this Guarantee on any number of separate
counterparts (including by telecopy), and all of said counterparts taken
together shall be deemed to constitute one and the same instrument.

     (h) Severability. Any provision of this Guarantee
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.

10

     (i) Section
Headings. The Section headings used in this Guarantee
are for convenience of reference only and are not to affect the construction
hereof or be taken into consideration in the interpretation hereof. 

     (j) Integration. This Guarantee and the other
Transaction Documents represent the agreement of the Guarantors and the
Purchasers with respect to the subject matter hereof and thereof, and there are
no promises, undertakings, representations or warranties by the Purchasers
relative to subject matter hereof and thereof not expressly set forth or
referred to herein or in the other Transaction Documents. 

     (k) Governing
Law. THIS GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED
AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK WITHOUT
REGARD TO ANY PRINCIPLES OF CONFLICTS OF LAWS.

     (l) Submission
to Jurisdictional; Waiver. Each Guarantor hereby
irrevocably and unconditionally: 

     (i) submits for
itself and its property in any legal action or proceeding relating to this
Guarantee and the other Transaction Documents to which it is a party, or for
recognition and enforcement of any judgment in respect thereof, to the
non-exclusive general jurisdiction of the Courts of the State of New York,
located in New York County, New York, the courts of the United States of America
for the Southern District of New York, and appellate courts from any
thereof;

     (ii) consents
that any such action or proceeding may be brought in such courts and waives any
objection that it may now or hereafter have to the venue of any such action or
proceeding in any such court or that such action or proceeding was brought in an
inconvenient court and agrees not to plead or claim the same;

     (iii) agrees
that service of process in any such action or proceeding may be effected by
mailing a copy thereof by registered or certified mail (or any substantially
similar form of mail), postage prepaid, to such Guarantor at its address
referred to in the Purchase Agreement or at such other address of which the
Purchasers shall have been notified pursuant thereto; 

     (iv) agrees that
nothing herein shall affect the right to effect service of process in any other
manner permitted by law or shall limit the right to sue in any other
jurisdiction; and

11

     (v) waives, to
the maximum extent not prohibited by law, any right it may have to claim or
recover in any legal action or proceeding referred to in this Section any
special, exemplary, punitive or consequential damages.

     (m)
Acknowledgements. Each Guarantor
hereby acknowledges that: 

     (i) it has been
advised by counsel in the negotiation, execution and delivery of this Guarantee
and the other Transaction Documents to which it is a party;

     (ii) the
Purchasers have no fiduciary relationship with or duty to any Guarantor arising
out of or in connection with this Guarantee or any of the other Transaction
Documents, and the relationship between the Guarantors, on the one hand, and the
Purchasers, on the other hand, in connection herewith or therewith is solely
that of debtor and creditor; and

     (iii) no joint
venture is created hereby or by the other Transaction Documents or otherwise
exists by virtue of the transactions contemplated hereby among the Guarantors
and any Purchaser.

     (n) Additional
Guarantors. The Company shall cause each of its
subsidiaries formed or acquired on or subsequent to the date hereof to become a
Guarantor for all purposes of this Guarantee by executing and delivering an
Assumption Agreement in the form of Annex 1 hereto. 

     (o) Release of
Guarantors. Subject to Section 2.6, each Guarantor will
be released from all liability hereunder concurrently with the repayment in full
of all of the Obligations.

     (p) Seniority. The Obligations of each of the
Guarantors hereunder rank senior in priority to any other Indebtedness (as
defined in the Purchase Agreement) of such Guarantor.

     (q) Waiver of
Jury Trial. EACH GUARANTOR AND, BY ACCEPTANCE OF THE
BENEFITS HEREOF, THE PURCHASERS, HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE
TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS GUARANTEE AND
FOR ANY COUNTERCLAIM THEREIN. 

******************

12

     IN WITNESS
WHEREOF, each of the undersigned has caused this Guarantee to be duly executed
and delivered as of the date first above written. 

	
    ICP Solar Technologies, Inc.
      (Nevada)  	
    1260491 Alberta, Inc.
      (Canada)  
	  	  
	By:_________________________________ 	  
	Name: 	By:_________________________________ 
	Title: 	Name: 
	  	Title: 
	  	  
	
    ICP Solar Technologies, Inc.
      (Canada)  	
    ICP Global
      Technologies, Inc. (Canada)  
	
       	
       
	  	  
	By:_________________________________ 	By:_________________________________ 
	Name: 	Name: 
	Title: 	Title: 
	  	  
	
    WES Power Technology, Inc.
      (Canada)  	
       
	  	  
	  	  
	By:_________________________________ 	  
	Name: 	  
	Title: 	  

13

SCHEDULE 1 

GUARANTORS 

     The following
are the names, notice addresses and jurisdiction of organization of each
Guarantor. 

	
       	
    Entity Type and 
    	
       
	
       	
    Jurisdiction of 
    	
    Percentage of 
  
	
       	
    Incorporation or 
    	
    Equity Owned by 
    
	
    Name of Guarantor  	Formation  	the Company  
	ICP Solar Technologies, Inc. 	Nevada 	100% 
	1260491 Alberta, Inc. 	Alberta, Canada Corporation 	100% 
	ICP Solar Technologies 	Canada Corporation 	100% 
	ICP Global Technologies, Inc. 	Canada Corporation 	100% 
	WES Power Technology, Inc. 	Canada Corporation 	100% 

14

Annex 1 to 
SUBSIDIARY GUARANTEE 

ASSUMPTION AGREEMENT, dated as of ____ __,
______made by ______________________________, a ______________corporation (the
“Additional Guarantor”), in favor of the Purchasers
pursuant to the Purchase Agreement referred to below. All capitalized terms not
defined herein shall have the meaning ascribed to them in such Purchase
Agreement.

W I T N E S S E T H : 

     WHEREAS, ICP
Solar Technologies, Inc., a Nevada corporation (the “Company”) and the Purchasers have entered
into a Line of Credit Agreement, dated as of June 9, 2008 (as amended,
supplemented or otherwise modified from time to time, the “Purchase Agreement”);

     WHEREAS, in
connection with the Purchase Agreement, the Company and its Subsidiaries (other
than the Additional Guarantor) have entered into the Subsidiary Guarantee, dated
as of June 9, 2008 (as amended, supplemented or otherwise modified from time to
time, the “Guarantee”) in favor
of the Purchasers;

     WHEREAS, the
Purchase Agreement requires the Additional Guarantor to become a party to the
Guarantee; and 

     WHEREAS, the
Additional Guarantor has agreed to execute and deliver this Assumption Agreement
in order to become a party to the Guarantee; 

NOW, THEREFORE, IT IS
AGREED: 

     1. Guarantee. By
executing and delivering this Assumption Agreement, the Additional Guarantor, as
provided in Section 5(n) of the Guarantee, hereby becomes a party to the
Guarantee as a Guarantor thereunder with the same force and effect as if
originally named therein as a Guarantor and, without limiting the generality of
the foregoing, hereby expressly assumes all obligations and liabilities of a
Guarantor thereunder. The information set forth in Annex 1-A hereto is hereby
added to the information set forth in Schedule 1 to the Guarantee. The
Additional Guarantor hereby represents and warrants that each of the
representations and warranties contained in Section 3 of the Guarantee is true
and correct on and as the date hereof as to such Additional Guarantor (after
giving effect to this Assumption Agreement) as if made on and as of such date.

     2. Governing Law.
THIS ASSUMPTION AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. 

15

     IN WITNESS
WHEREOF, the undersigned has caused this Assumption Agreement to be duly
executed and delivered as of the date first above written. 

	 	[ADDITIONALGUARANTOR] 
	 	  
	 	By:
      __________________
	 	Name: 
	 	Title:
  

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Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00163-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00163-of-00352.parquet"}]]