Document:

Exhibit 10.1

 

SECURITIES PURCHASE AGREEMENT

This
Securities Purchase Agreement (this “Agreement”) is dated as of August
30, 2006 among Advanced Cell Technology, Inc., a Delaware corporation (the “Company”),
and each purchaser identified on the signature pages hereto (each, including
its successors and assigns, a “Purchaser” and collectively the “Purchasers”).

WHEREAS,
subject to the terms and conditions set forth in this Agreement and pursuant to
Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”)
and Rule 506 promulgated thereunder, the Company desires to issue and sell to
each Purchaser, and each Purchaser, severally and not jointly, desires to
purchase from the Company, securities of the Company as more fully described in
this Agreement.

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

ARTICLE I

DEFINITIONS

1.1           Definitions.  In addition to the terms defined elsewhere in
this Agreement: (a) capitalized terms that are not otherwise defined herein
have the meanings given to such terms in the Debentures (as defined herein),
and (b) the following terms have the meanings indicated in this Section 1.1:

“Action” shall have the meaning ascribed to
such term in Section 3.1(j).

“Actual Minimum” means, as of any date, the
maximum aggregate number of shares of Common Stock then issued or potentially
issuable in the future pursuant to the Transaction Documents, including any
Underlying Shares issuable upon exercise or conversion in full of all Warrants
and the Debentures, ignoring any conversion or exercise limits set forth
therein.

“Affiliate” means any Person that, directly or
indirectly through one or more intermediaries, controls or is controlled by or
is under common control with a Person, as such terms are used in and construed
under Rule 144 under the Securities Act. 
With respect to a Purchaser, any investment fund or managed account that
is managed on a discretionary basis by the same investment manager as such
Purchaser will be deemed to be an Affiliate of such Purchaser.

 “Closing”
means the closing of the purchase and sale of the Securities pursuant to
Section 2.1.

“Closing Date” means the Trading Day when all
of the Transaction Documents have been executed and delivered by the applicable
parties thereto, and all conditions 

 

 

precedent to (i) the Purchasers’ obligations to pay
the Subscription Amount and (ii) the Company’s obligations to deliver the
Securities have been satisfied or waived.

“Closing Price” means on any particular date
(a) the last reported closing bid price per share of Common Stock on such
date on the Trading Market (as reported by Bloomberg L.P. at 4:15 PM (New York
time), or (b) if there is no such price on such date, then the closing bid
price on the Trading Market on the date nearest preceding such date (as
reported by Bloomberg L.P. at 4:15 PM (New York time) for the closing bid price
for regular session trading on such day), or (c) if the Common Stock is
not then listed or quoted on the Trading Market and if prices for the Common
Stock are then reported in the “pink sheets” published by the 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 (d) if the shares of Common Stock are not then publicly traded the fair
market value of a share of Common Stock as determined by a qualified
independent appraiser selected in good faith by the Purchasers of a majority in
interest of the then outstanding Principal Amount of the Debentures.

 “Commission”
means the Securities and Exchange Commission.

“Common Stock” means the common stock of the
Company, par value $0.001 per share, and any other class of securities into
which such securities may hereafter have been reclassified or changed into.

“Common Stock Equivalents” means any securities
of the Company or the Subsidiaries which would entitle the holder thereof to
acquire at any time Common Stock, including, without limitation, any debt,
Debentures, rights, options, warrants 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.

“Company Counsel” means Pierce Atwood LLP.

“Conversion Price” shall have the meaning
ascribed to such term in the Debentures.

“Corporate
Milestones” means, as of a date in question, (i) all of the outstanding
Common Stock is listed for trading on the Nasdaq SmallCap Market, the American
Stock Exchange or the Nasdaq National Market, (ii)  the Closing
Price for each of the 5 consecutive Trading Days immediately prior to such
date, which 5 consecutive Trading Day period shall not have commenced
until after the Effective Date, is at
or above the Conversion Price then in effect and (iii) the daily trading
volume of the Common Stock on such market or exchange shall be equal to at
least the greater of (a) $750,000 per day for each of the 20 consecutive
Trading Days immediately prior to such date, which 20 consecutive Trading Day
period shall not have commenced until after the Effective Date, or (b) 200,000
shares of Common Stock per day for each of the 20 consecutive Trading Days
immediately prior to such date, subject to adjustment for forward and reverse
stock 

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splits,
recapitalizations, stock interests and the like after the date hereof, which 20
consecutive Trading Day period shall not have commenced until after the
Effective Date.

“Debentures”
means the Amortizing Convertible Debentures issued by the Company to the
Purchasers hereunder, in the form of Exhibit A.

“Disclosure
Schedules” shall have the meaning ascribed to such term in Section 3.1.

“Effective Date”
means the date that the initial Registration Statement filed by the Company
pursuant to the Registration Rights Agreement is first declared effective by
the Commission.

“Evaluation
Date” shall have the meaning ascribed to such term in Section 3.1(r).

“Exchange Act”
means the Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder.

“Exempt
Issuance” means the issuance of (a) shares of Common Stock or options to
employees, officers or directors of the Company pursuant to any stock or option
plan duly adopted by a majority of the non-employee members of the Board of
Directors of the Company or a majority of the members of a committee of
non-employee directors established for such purpose, (b) securities upon the
exercise or conversion of any securities issued pursuant to this Agreement,
convertible securities, options or warrants issued and outstanding on the date
of this Agreement, provided that such securities have not been amended since
the date of this Agreement to increase the number of such securities or to
decrease the exercise, exchange or conversion price of any such securities, and
(c) securities issued pursuant to acquisitions or strategic transactions,
provided any such issuance shall only be to a Person which is, itself or
through its subsidiaries, an operating company in a business synergistic with
the business of the Company and in which the Company receives benefits in
addition to the investment of funds, but shall not include a transaction in which
the Company is issuing securities primarily for the purpose of raising capital
or to an entity whose primary business is investing in securities.

“Exempt
Redemptions” means redemption of shares by the Company solely as a result
of a redemption of a de minimus number of shares from employees, officers or
directors of the Company pursuant to termination of employment or resolution of
employment disputes with any such Persons, which issuances are approved by the
Board of Directors.

“Force Majeure” 
shall mean any unusual event arising from causes reasonably beyond the control
of the Company that could not be reasonably anticipated that causes a delay in
or prevents the performance of any obligation under this Agreement or the
Transaction Documents, including but not limited to: acts of God; fire; war;
terrorism; insurrection; civil disturbance; explosion; adverse weather
conditions that could not be 

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reasonably
anticipated; unusual delay in transportation; strikes or other labor disputes;
restraint by court order or order of public authority but not including delays
solely caused by any action of, or failure to act by, the Commission or the
Company’s transfer agent.

“GAAP”
shall have the meaning ascribed to such term in Section 3.1(h).

“Indebtedness”
shall have the meaning ascribed to such term in Section 3.1(aa).

“Intellectual
Property Rights” shall have the meaning ascribed to such term in Section
3.1(o).

“Legend Removal
Date” shall have the meaning ascribed to such term in Section 4.1(c).

“Liens”
means a lien, charge, security interest, encumbrance, right of first refusal,
preemptive right or other restriction.

 “Market Price” shall mean $0.288,
subject to adjustment for reverse and forward stock splits, stock interests,
stock combinations and other similar transactions of the Common Stock that
occur after the date of this Agreement

“Material
Adverse Effect” shall have the meaning assigned to such term in Section
3.1(b).

“Material
Permits” shall have the meaning ascribed to such term in Section 3.1(m).

“Maximum Rate”
shall have the meaning ascribed to such term in Section 5.17.

“Participation
Maximum” shall have the meaning ascribed to such term in Section 4.13.

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

“Pre-Notice”
shall have the meaning ascribed to such term in Section 4.13.

“Principal Amount”
shall mean, as to each Purchaser, the amounts set forth below such Purchaser’s
signature block on the signature pages hereto and next to the heading “Principal
Amount”, in United States Dollars, which shall equal such Purchaser’s
Subscription Amount multiplied by 1.255.

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

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“Purchaser
Party” shall have the meaning ascribed to such term in Section 4.11.

“Registration
Rights Agreement” means the Registration Rights Agreement, dated the date
hereof, among the Company and the Purchasers, in the form of Exhibit B
attached hereto.

“Registration
Statement” means a registration statement meeting the requirements set
forth in the Registration Rights Agreement and covering the resale of the
Underlying Shares by each Purchaser as provided for in the Registration Rights
Agreement.

“Required
Approvals” shall have the meaning ascribed to such term in Section 3.1(e).

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

“SEC Reports”
shall have the meaning ascribed to such term in Section 3.1(h).

“Securities”
means the Debentures, the Warrants, the Warrant Shares and the Underlying
Shares.

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

 “Short Sales” shall include all “short
sales” as defined in Rule 200 of Regulation SHO under the Exchange Act.

“Subscription
Amount” shall mean, as to each Purchaser, the amount to be paid for
Debentures and Warrants purchased hereunder as specified below such Purchaser’s
name on the signature page of this Agreement, in United States Dollars.

“Subsequent
Financing” shall have the meaning ascribed to such term in Section 4.13.

“Subsequent
Financing Notice” shall have the meaning ascribed to such term in Section
4.13.

“Subsidiary”
means any subsidiary of the Company as set forth on Schedule 3.1(a).

“Trading Day”
means a day on which the Common Stock is traded on a Trading Market.

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 “Trading Market” means the following
markets or exchanges on which the Common Stock is listed or quoted for trading
on the date in question: the Nasdaq SmallCap Market, the American Stock
Exchange, the New York Stock Exchange, the Nasdaq National Market or the OTC
Bulletin Board.

“Transaction
Documents” means this Agreement, the Debentures, the Warrants, the
Registration Rights Agreement and the other documents or agreements listed on Schedule
A attached hereto.

“Underlying
Shares” means the shares of Common Stock issued and issuable upon
conversion of the Debenture and upon exercise of the Warrants.

“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 primary Trading Market on which the Common
Stock is then listed or quoted as reported by Bloomberg Financial L.P. (based
on a Trading Day from 9:30 a.m. EST to 4:02 p.m. Eastern Time) using the VAP
function; (b) if the Common Stock is not then listed or quoted on the
Trading Market and if prices for the Common Stock are then reported in the “Pink
Sheets” published by the 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 a nationally
recognized-independent appraiser selected in good faith by Purchasers holding a
majority of the Principal Amount of the Debentures then outstanding.

 “Warrants” means collectively the
Common Stock purchase warrants, in the form of Exhibit C delivered to
the Purchasers at the Closing in accordance with Section 2.2(a) hereof, which
Warrants shall be exercisable immediately and have a term of exercise equal to
five years.

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

ARTICLE II

PURCHASE
AND SALE

2.1           Closing.  On the Closing Date, upon the terms and
subject to the conditions set forth herein, concurrent with the execution and
delivery of this Agreement by the parties hereto, the Company agrees to sell,
and each Purchaser agrees to purchase in the aggregate, severally and not jointly,
up to $11,250,000 Principal Amount of Debentures and Warrants as determined
pursuant to Section 2.2(a).  Each
Purchaser shall deliver to the Company via wire transfer or a certified check
of immediately available funds equal to their Subscription Amount and the
Company shall deliver to each Purchaser their respective Debentures and
Warrants as determined pursuant to Section 2.2(a) and the other items set forth
in Section 2.2 issuable at the Closing.  

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Upon satisfaction of the
conditions set forth in Sections 2.2 and 2.3, the Closing shall occur at the
offices of Company Counsel, or such other location as the parties shall
mutually agree.

2.2           Deliveries.

a)                                      On
the Closing Date, the Company shall deliver or cause to be delivered to each
Purchaser the following:

(i)                                     this
Agreement duly executed by the Company;

(ii)                                  a
legal opinion of Company Counsel, in the form of Exhibit D attached
hereto;

(iii)                               a
Debenture with a principal amount equal to such Purchaser’s Principal Amount,
registered in the name of such Purchaser;

(iv)                              a
Warrant registered in the name of such Purchaser to purchase up to a number of
shares of Common Stock equal to 50% of such Purchaser’s Principal Amount
divided by the Market Price, with an exercise price equal to $0.3168, subject
to adjustment therein;

(v)                                 irrevocable
lock-up agreement, in the form of Exhibit E attached hereto, duly
executed from each officer and director of the Company that holds 1,000,000 or
more shares of Common Stock or Common Stock Equivalents; and

(vi)                              the
Registration Rights Agreement duly executed by the Company.

b)                                     On
the Closing Date, each Purchaser shall deliver or cause to be delivered to the
Company the following:

(i)                                     this
Agreement duly executed by such Purchaser;

(ii)                                  such
Purchaser’s Subscription Amount by wire transfer to the account as specified in
writing by the Company; and

(iii)                               the
Registration Rights Agreement duly executed by such Purchaser.

2.3                                                         Closing
Conditions.

a)                                      The
obligations of the Company hereunder in connection with the Closing are subject
to the following conditions being met:

(i)                                     the
accuracy in all material respects when made and on the Closing Date of the
representations and warranties of the Purchasers contained herein;

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(ii)                                  all
obligations, covenants and agreements of the Purchasers required to be
performed at or prior to the Closing Date shall have been performed; and

(iii)                               the
delivery by the Purchasers of the items set forth in Section 2.2(b) of this
Agreement.

b)                                     The
respective obligations of the Purchasers hereunder in connection with the
Closing are subject to the following conditions being met:

(i)                                     the
accuracy in all material respects on the Closing Date of the representations
and warranties of the Company contained herein;

(ii)                                  all
obligations, covenants and agreements of the Company required to be performed
at or prior to the Closing Date shall have been performed;

(iii)                               the delivery by the Company of the items set forth in
Section 2.2(a) of this Agreement;

(iv)                              there shall have been no Material Adverse Effect with
respect to the Company since the date hereof; and

(v)                                 from
the date hereof to the Closing Date, trading in the Common Stock shall not have
been suspended by the Commission (except for any suspension of trading of
limited duration agreed to by the Company, which suspension shall be terminated
prior to the Closing), and, at any time prior to the Closing Date, trading in
securities generally as reported by Bloomberg Financial Markets shall not have
been suspended or limited, or minimum prices shall not have been established on
securities whose trades are reported by such service, or on any Trading Market,
nor shall a banking moratorium have been declared either by the United States
or New York State authorities nor shall there have occurred any material
outbreak or escalation of hostilities or other national or international
calamity of such magnitude in its effect on, or any material adverse change in,
any financial market which, in each case, in the reasonable judgment of each
Purchaser, makes it impracticable or inadvisable to purchase the Debentures at
the Closing.

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ARTICLE
III

REPRESENTATIONS AND WARRANTIES

3.1           Representations and Warranties of
the Company.  Except as set forth
under the corresponding section of the disclosure schedules delivered to the
Purchasers concurrently herewith (the “Disclosure Schedules”) which
Disclosure Schedules shall be deemed a part hereof, the Company hereby makes
the representations and warranties (and, where applicable, covenants) set forth
below to each Purchaser.

(a)           Subsidiaries.
 All of the direct and indirect
subsidiaries of the Company are set forth on Schedule 3.1(a).  The Company owns, directly or indirectly, all
of the capital stock or other equity interests of each Subsidiary free and
clear of any Liens, and all the issued and outstanding shares of capital stock
of each Subsidiary are validly issued and are fully paid, non-assessable and
free of preemptive and similar rights to subscribe for or purchase
securities.  If the Company has no
subsidiaries, then references in the Transaction Documents to the Subsidiaries
will be disregarded.

(b)           Organization
and Qualification.  The Company and
each of the Subsidiaries is an entity duly incorporated or otherwise organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation or organization (as applicable), with the requisite power and
authority to own and use its properties and assets and to carry on its business
as currently conducted.  Neither the Company
nor any Subsidiary is in violation or default of any of the provisions of its
respective certificate or articles of incorporation, bylaws or other
organizational or charter documents. 
Each of the Company and the Subsidiaries is duly qualified to conduct
business and is in good standing as a foreign corporation or other entity in
each jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, except where the failure to be
so qualified or in good standing, as the case may be, could not have or
reasonably be expected to result in (i) a material adverse effect on the
legality, validity or enforceability of any Transaction Document, (ii) a
material adverse effect on the results of operations, assets, business or
financial condition  of the Company and
the Subsidiaries, taken as a whole, or (iii) a material adverse effect on the
Company’s ability to perform in any material respect on a timely basis its
obligations under any Transaction Document (any of (i), (ii) or (iii), a “Material
Adverse Effect”) and no Proceeding has been instituted in any such
jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or
curtail such power and authority or qualification.

(c)           Authorization;
Enforcement.  The Company has the
requisite corporate power and authority to enter into and to consummate the
transactions contemplated by each of the Transaction Documents and otherwise to
carry out its obligations hereunder and thereunder.  The execution and delivery of each of the
Transaction Documents by the Company and the consummation by it of the
transactions contemplated thereby have been duly authorized by all necessary
action on the part of the Company and no further action is required by the
Company, its board of directors or its stockholders in connection therewith
other than in connection with the Required Approvals.  Each Transaction Document has been (or upon
delivery will have been) duly executed by the Company and, when delivered in
accordance with the terms hereof and thereof, will constitute the valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms except (i) as limited by applicable bankruptcy, insolvency, 

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reorganization, moratorium and other laws of general application
affecting enforcement of creditors’ rights generally and (ii) as limited by
laws relating to the availability of specific performance, injunctive relief,
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law) and except as the
indemnification agreements and penalty provisions hereof may be legally
unenforceable.

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

(e)           Filings,
Consents and Approvals.  The Company
is not required to obtain any consent, waiver, authorization or order of, give
any notice to, or make any filing or registration with, any court or other
federal, state, local or other governmental authority or other Person in
connection with the execution, delivery and performance by the Company of the
Transaction Documents, other than (i) filings required pursuant to Section 4.6,
(ii) the filing with the Commission of the Registration Statement, (iii) the
notice and/or application(s) to each applicable Trading Market for the issuance
and sale of the Debentures and Warrants and the listing of the Underlying
Shares for trading thereon in the time and manner required thereby and (iv) the
filing of Form D with the Commission and such filings as are required to be
made under applicable state securities laws (collectively, the “Required
Approvals”).

(f)            Issuance
of the Securities.  The Securities
are duly authorized and, when issued and paid for in accordance with the
applicable Transaction Documents, will be duly and validly issued, fully paid
and nonassessable, free and clear of all Liens imposed by the Company other
than restrictions on transfer provided for in the Transaction Documents.  The Underlying Shares, when issued in
accordance with the terms of the Transaction Documents, will be validly issued,
fully paid and nonassessable, free and clear of all Liens imposed by the
Company.  The Company has reserved from
its duly 

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authorized capital stock a number of shares of Common Stock for
issuance of the Underlying Shares at least equal to the Actual Minimum on the
date hereof.

(g)           Capitalization.  The list of the shareholders of the Company
holding in excess of one percent (1%) of the issued and outstanding stock of
the Company as of June 30, 2006 and stating in the aggregate the number of
shares held by shareholders holding less than one percent (1%) of the
outstanding stock of the Company is set forth on Schedule 3.1(g).  The Company has not issued any capital stock
since its most recently filed periodic report
under the Exchange Act, other than as set forth on Schedule 3.1(g).  The capitalization of the Company is as set
forth on Schedule 3.1(g).  No Person has
any right of first refusal, preemptive right, right of participation, or any
similar right to participate in the transactions contemplated by the
Transaction Documents.  Except as a
result of the purchase and sale of the Securities, there are no outstanding
options, warrants, script rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities, rights or obligations
convertible into or exercisable or exchangeable for, or giving any Person any
right to subscribe for or acquire, any shares of Common Stock, or contracts,
commitments, understandings or arrangements by which the Company or any
Subsidiary is or may become bound to issue additional shares of Common Stock or
Common Stock Equivalents.  The issuance
and sale of the Securities will not obligate the Company to issue shares of
Common Stock or other securities to any Person (other than the Purchasers) and
will not result in a right of any holder of Company securities to adjust the
exercise, conversion, exchange or reset price under such securities. All of the
outstanding shares of capital stock of the Company are validly issued, fully
paid and nonassessable, have been issued in compliance with all federal and
state securities laws, and none of such outstanding shares was issued in
violation of any preemptive rights or similar rights to subscribe for or
purchase securities.  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 knowledge of the Company,
between or among any of the Company’s stockholders.

(h)           SEC
Reports; Financial Statements.  The
Company has filed all reports, schedules, forms, statements and other documents
required to be filed by it under the Securities Act and the Exchange Act,
including pursuant to Section 13(a) or 15(d) thereof, for the two years
preceding the date hereof (or such shorter period as the Company was required
by law to file such material) (the foregoing materials, including the exhibits
thereto and documents incorporated by reference therein, being collectively
referred to herein as the “SEC Reports”) on a timely basis or has
received a valid extension of such time of filing and has filed any such SEC
Reports prior to the expiration of any such extension.  As of their respective dates, the SEC Reports
complied in all material respects with the requirements of the Securities Act
and the Exchange Act and the rules and regulations of the Commission promulgated
thereunder, and none of the SEC Reports, when filed, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not 

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misleading.  The financial
statements of the Company included in the SEC Reports comply in all material
respects with applicable accounting requirements and the rules and regulations
of the Commission with respect thereto as in effect at the time of filing.  Such financial statements have been prepared
in accordance with United States generally accepted accounting principles
applied on a consistent basis during the periods involved (“GAAP”),
except as may be otherwise specified in such financial statements or the notes
thereto and except that unaudited financial statements may not contain all
footnotes required by GAAP, and fairly present in all material respects the
financial position of the Company and its consolidated subsidiaries as of and
for the dates thereof and the results of operations and cash flows for the
periods then ended, subject, in the case of unaudited statements, to normal,
immaterial, year-end audit adjustments.

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

(j)            Litigation.  There is no action, suit, inquiry, notice of
violation, proceeding or investigation pending or, to the knowledge of the
Company, threatened against or affecting the Company, any Subsidiary or any of
their respective properties before or by any court, arbitrator, governmental or
administrative agency or regulatory authority (federal, state, county, local or
foreign) (collectively, an “Action”) which (i) adversely affects or
challenges the legality, validity or enforceability of any of the Transaction
Documents or the Securities or (ii) could, if there were an unfavorable
decision, have or reasonably be expected to result in a Material Adverse
Effect.  Neither the Company nor any
Subsidiary, nor any director or officer thereof, is or has been the subject of
any Action involving a claim of violation of or liability under federal or
state securities laws or a claim of breach of fiduciary duty.  There has not been, and to the knowledge of
the Company, there is not pending or contemplated, any investigation by the
Commission involving the Company or any current or former director or officer
of the Company.  The Commission has not
issued any stop order or other order suspending the effectiveness of any
registration statement filed by the Company or any Subsidiary under the
Exchange Act or the Securities Act.

 12
 

 

 

(k)           Labor
Relations.  No material labor dispute
exists or, to the knowledge of the Company, is imminent with respect to any of
the employees of the Company which could reasonably be expected to result in a
Material Adverse Effect.

(l)            Compliance.  Neither the Company nor any Subsidiary (i) is
in default under or in violation of (and no event has occurred that has not
been waived that, with notice or lapse of time or both, would result in a
default by the Company or any Subsidiary under), nor has the Company or any
Subsidiary received notice of a claim that it is in default under or that it is
in violation of, any indenture, loan or credit agreement or any other material
agreement or instrument to which it is a party or by which it or any of its
properties is bound (whether or not such default or violation has been waived),
(ii) is in violation of any order of any court, arbitrator or governmental
body, or (iii) is or has been in violation of any statute, rule or regulation
of any governmental authority, including without limitation all foreign,
federal, state and local laws applicable to its business except in each case as
could not have a Material Adverse Effect.

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

(n)           Title
to Assets.  The Company and the
Subsidiaries have good and marketable title in fee simple to all real property
owned by them that is material to the business of the Company and the
Subsidiaries and good and marketable title in all personal property owned by
them that is material to the business of the Company and the Subsidiaries, in
each case free and clear of all Liens, except for Liens as do not materially
affect the value of such property and do not materially interfere with the use
made and proposed to be made of such property by the Company and the
Subsidiaries and Liens for the payment of federal, state or other taxes, the
payment of which is neither delinquent nor subject to penalties, except in each
case as could not have a Material Adverse Effect.  Any real property and facilities held under
lease by the Company and the Subsidiaries are held by them under valid,
subsisting and enforceable leases of which the Company and the Subsidiaries are
in compliance, except in each case as could no have a Material Adverse Effect.

(o)           Patents
and Trademarks.  The Company and the
Subsidiaries have, or have rights to use, all patents, patent applications,
trademarks, trademark applications, service marks, trade names, copyrights,
licenses and other similar rights necessary or material for use in connection
with their respective businesses as described in the SEC Reports and which the
failure to so have could have a Material Adverse Effect (collectively, the “Intellectual
Property Rights”).  Neither the
Company nor any Subsidiary has received a written notice that the Intellectual
Property Rights used by the Company or any Subsidiary in connection with their
respective businesses as described in the SEC Reports 

 13
 

 

 

violates or infringes upon the rights of any Person. To the knowledge
of the Company, all such Intellectual Property Rights are enforceable and there
is no existing infringement by another Person of any of the Intellectual
Property Rights of others.

(p)           Insurance.  The Company and the Subsidiaries are insured
by insurers of recognized financial responsibility against such losses and
risks and in such amounts as are prudent and customary in the businesses in
which the Company and the Subsidiaries are engaged, including, but not limited
to, directors and officers insurance coverage at least equal to the aggregate
Subscription Amount.  To the best knowledge
of the Company, such insurance contracts and policies are accurate and
complete.  Neither the Company nor any
Subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business without a significant increase in cost.

(q)           Transactions
With Affiliates and Employees. 
Except as set forth in the SEC Reports, none of the officers or directors
of the Company and, to the knowledge of the Company, none of the employees of
the Company is presently a party to any transaction with the Company or any
Subsidiary (other than for services as employees, officers and directors),
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any entity in
which any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner, in each case in excess of $60,000
other than (i) for payment of salary or consulting fees for services rendered,
(ii) reimbursement for expenses incurred on behalf of the Company and (iii) for
other employee benefits, including stock option agreements under any stock
option plan of the Company.

(r)            Sarbanes-Oxley;
Internal Accounting Controls.  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.  The Company
and the Subsidiaries maintain a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are executed
in accordance with management’s general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with management’s general or
specific authorization, and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate
action is taken with respect to any differences. The Company has established
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) for the Company and designed such disclosure controls and
procedures to ensure that information required to be disclosed by the Company
in the reports it files or submits under the Exchange Act is recorded,
processed, summarized and reported, within the time periods specified in the
Commission’s rules and forms.  The
Company’s certifying officers have evaluated the effectiveness of the Company’s
disclosure controls and procedures as of the end of the 

 14
 

 

 

period covered by the Company’s most recently
filed periodic report under the Exchange Act (such date, the “Evaluation
Date”).  The Company presented in its
most recently filed periodic report under the Exchange Act the conclusions of
the certifying officers about the effectiveness of the disclosure controls and
procedures based on their evaluations as of the Evaluation Date.  Since the Evaluation Date, there have been no
changes in the Company’s internal control over financial reporting (as such
term is defined in the Exchange Act) that has materially affected, or is
reasonably likely to materially affect, the Company’s internal control over
financial reporting.

(s)           Certain
Fees.  Except as set forth on Schedule
3.1(s) with respect to amounts payable to T.R. Winston & Company, no
brokerage or finder’s fees or commissions are or will be payable by the Company
to any broker, financial advisor or consultant, finder, placement agent,
investment banker, bank or other Person with respect to the transactions
contemplated by the Transaction Documents. 
The Purchasers shall have no obligation with respect to any fees or with
respect to any claims made by or on behalf of other Persons for fees of a type
contemplated in this Section that may be due in connection with the
transactions contemplated by the Transaction Documents.

(t)            Private
Placement. Assuming the accuracy of the Purchasers representations and
warranties set forth in Section 3.2, no registration under the Securities Act
is required for the offer and sale of the Securities by the Company to the
Purchasers as contemplated hereby. The issuance and sale of the Securities
hereunder does not contravene the rules and regulations of the Trading Market.

(u)           Investment
Company. The Company is not, and is not an Affiliate of, and immediately
after receipt of payment for the Securities, will not be or be an Affiliate of,
an “investment company” within the meaning of the Investment Company Act of
1940, as amended.  The Company shall
conduct its business in a manner so that it will not become subject to the
Investment Company Act.

(v)           Registration
Rights.  Other than each of the
Purchasers, no Person has any right to cause the Company to effect the
registration under the Securities Act of any securities of the Company.

(w)          Listing and Maintenance
Requirements.  The Company’s Common
Stock is registered pursuant to Section 12(g) of the Exchange Act, and the
Company has taken no action designed to, or which to its knowledge is likely to
have the effect of, terminating the registration of the Common Stock under the
Exchange Act nor has the Company received any notification that the Commission
is contemplating terminating such registration. 
The Company has not, in the 12 months preceding the date hereof,
received notice from any Trading Market on which the Common Stock is or has
been listed or quoted to the effect that the Company is not in compliance with
the listing or maintenance requirements of such Trading Market. The Company is,
and has no reason to believe that it will not in the foreseeable future
continue to be, in compliance with all such listing and maintenance
requirements.

 15
 

 

 

(x)            Application of Takeover
Protections.  The Company and its
Board of Directors have not taken any affirmative measures or action, to
institute any control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or other similar anti-takeover
provision under the Company’s Certificate of Incorporation (or similar charter
documents) or the laws of its state of incorporation that is or could become
applicable to the Purchasers as a result of the Purchasers and the Company
fulfilling their obligations or exercising their rights under the Transaction
Documents, including without limitation as a result of the Company’s issuance
of the Securities and the Purchasers’ ownership of the Securities, other than
those provisions of Delaware law generally applicable to corporations organized
under the laws of that State.

(y)           Disclosure.  The Company confirms that neither it nor any
other Person acting on its behalf has provided any of the Purchasers or their
agents or counsel with any information that constitutes or might constitute
material, nonpublic information.  The
Company understands and confirms that the Purchasers will rely on the foregoing
representations and covenants in effecting transactions in securities of the
Company.  All disclosure provided to the
Purchasers regarding the Company, its business and the transactions
contemplated hereby, including the Disclosure Schedules to this Agreement,
furnished by or on behalf of the Company with respect to the representations
and warranties made herein are true and correct with respect to such
representations and warranties and do not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements made therein, in light of the circumstances under which they were
made, not misleading. The Company acknowledges and agrees that no Purchaser
makes or has made any representations or warranties with respect to the
transactions contemplated hereby other than those specifically set forth in
Section 3.2 hereof.

(z)            No Integrated Offering.
Assuming the accuracy of the Purchasers’ representations and warranties set
forth in Section 3.2, 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 cause this offering of the Securities to be
integrated with prior offerings by the Company for purposes of the Securities
Act or any applicable shareholder approval provisions, including, without
limitation, under the rules and regulations of any Trading Market on which any
of the securities of the Company are listed or designated. 

(aa)         Solvency.  Based on the financial condition of the
Company as of the Closing Date after giving effect to the receipt by the
Company of the proceeds from the sale of the Securities hereunder and assuming
for purposes of this representation that the Securities are all converted into
equity, (i) the Company’s fair saleable value of its assets exceeds the amount
that will be required to be paid on or in respect of the Company’s existing
debts and other liabilities (including known contingent liabilities) as they
mature; (ii) the Company’s assets do not constitute unreasonably small capital
to carry on its business for the current fiscal year as now conducted and as
proposed to be conducted including its capital needs taking into account the
particular capital requirements of the 

 16
 

 

 

business conducted by the Company, and
projected capital requirements and capital availability thereof; and (iii) the
current cash flow of the Company, together with the proceeds the Company would
receive, were it to liquidate all of its assets, after taking into account all
anticipated uses of the cash, would be sufficient to pay all amounts on or in
respect of its debt when such amounts are required to be paid.  The Company does not intend to incur debts
beyond its ability to pay such debts as they mature (taking into account the
timing and amounts of cash to be payable on or in respect of its debt).  The Company has no knowledge of any facts or
circumstances which lead it to believe that it will file for reorganization or
liquidation under the bankruptcy or reorganization laws of any jurisdiction
within one year from the Closing Date. 
The SEC Reports set forth as of the dates thereof all outstanding
secured and unsecured Indebtedness of the Company or any Subsidiary, or for
which the Company or any Subsidiary has commitments.  For the purposes of this Agreement, “Indebtedness”
shall mean (a) any liabilities for borrowed money or amounts owed in excess of
$50,000 (other than trade accounts payable incurred in the ordinary course of
business), (b) all guaranties, endorsements and other contingent obligations in
respect of Indebtedness of others, whether or not the same are or should be
reflected in the Company’s balance sheet (or the notes thereto), except
guaranties by endorsement of negotiable instruments for deposit or collection
or similar transactions in the ordinary course of business; and (c) the present
value of any lease payments in excess of $50,000 due under leases required to
be capitalized in accordance with GAAP. 
Neither the Company nor any Subsidiary is in default with respect to any
Indebtedness.

(bb)         Tax Status.  Except for matters that would not,
individually or in the aggregate, have or reasonably be expected to result in a
Material Adverse Effect, the Company and each Subsidiary has filed all
necessary federal, state and foreign income and franchise tax returns and has
paid or accrued all taxes shown as due thereon, and the Company has no
knowledge of a tax deficiency which has been asserted or threatened against the
Company or any Subsidiary.

(cc)         No General Solicitation.  Neither the Company nor any person acting on
behalf of the Company has offered or sold any of the Securities by any form of
general solicitation or general advertising. 
The Company has offered the Securities for sale only to the Purchasers
and certain other “accredited investors” within the meaning of Rule 501 under
the Securities Act.

(dd)         Foreign Corrupt Practices.  Neither the Company, nor to the knowledge of
the Company, any agent or other person acting on behalf of the Company, has (i)
directly or indirectly, used any funds for unlawful contributions, gifts,
entertainment or other unlawful expenses related to foreign or domestic
political activity, (ii) made any unlawful payment to foreign or domestic
government officials or employees or to any foreign or domestic political parties
or campaigns from corporate funds, (iii) failed to disclose fully any
contribution made by the Company (or made by any person acting on its behalf of
which the Company is aware) which is  in
violation of law, or (iv) violated in any material respect any provision of the
Foreign Corrupt Practices Act of 1977, as amended.

 17
 

 

 

(ee)         Accountants.  The Company’s accountants are set forth on Schedule
3.1(ee) of the Disclosure Schedule. 
To the knowledge of the Company, such accountants, who the Company
expects will express their opinion with respect to the financial statements to
be included in the Company’s Annual Report on Form 10-KSB for the year ended
December 31, 2006 are a registered public accounting firm as required by the
Securities Act.

(ff)           Seniority.  As of the Closing Date, no indebtedness or
other equity of the Company is senior to the Debentures in right of payment,
whether with respect to interest or upon liquidation or dissolution, or
otherwise, other than general unsecured indebtedness incurred in connection
with equipment and real estate financing customary for research and development
companies, accounts payables and indebtedness secured by purchase money
security interests (which is senior only as to underlying assets covered
thereby) and capital lease obligations (which is senior only as to the property
covered thereby), which indebtedness is set forth on Schedule 3.1(ff).

(gg)         No Disagreements with Accountants
and Lawyers.  There are no
disagreements of any kind presently existing, or reasonably anticipated by the
Company to arise, between the accountants and lawyers formerly or presently
employed by the Company and the Company has fully accrued all amounts owed to
its accountants and lawyers.

(hh)         Acknowledgment Regarding Purchasers’
Purchase of Securities.  The Company
acknowledges and agrees that each of the Purchasers is acting solely in the
capacity of an arm’s length purchaser with respect to the Transaction Documents
and the transactions contemplated hereby. 
The Company further acknowledges that no Purchaser is 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 any
advice given by any Purchaser or any of their respective representatives or
agents in connection with this Agreement and the transactions contemplated
hereby is merely incidental to the Purchasers’ purchase of the Securities.  The Company further represents to each
Purchaser that the Company’s decision to enter into this Agreement has been
based solely on the independent evaluation of the transactions contemplated
hereby by the Company and its representatives.

(ii)           Acknowledgement Regarding
Purchasers’ Trading Activity. 
Anything in this Agreement or elsewhere herein to the contrary
notwithstanding (except for Section 4.16 hereof), it is understood and agreed
by the Company (i) that none of the Purchasers have been asked to agree, 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) that past or future open market or other transactions by any
Purchaser, including Short Sales, and specifically including, without
limitation, Short Sales or “derivative” transactions, before or after the
closing of this or future private placement transactions, may negatively impact
the market price of the Company’s publicly-traded securities; (iii) that any
Purchaser, and counter parties in “derivative” transactions to which any such
Purchaser is 

 18
 

 

 

a party, directly or indirectly, presently
may have a “short” position in the Common Stock, and (iv) that 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.

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

3.2           Representations and Warranties of
the Purchasers.  Each Purchaser
hereby, for itself and for no other Purchaser, represents and warrants as of
the date hereof and as of the Closing Date to the Company as follows:

(a)           Organization;
Authority.  Such Purchaser is an
entity duly organized, validly existing and in good standing under the laws of
the jurisdiction of its organization with full right, corporate or partnership
power and authority to enter into and to consummate the transactions
contemplated by the Transaction Documents and otherwise to carry out its
obligations hereunder and thereunder. The execution, delivery and performance
by such Purchaser of the transactions contemplated by this Agreement have been
duly authorized by all necessary corporate or similar action on the part of
such Purchaser.  Each Transaction
Document to which it is a party has been duly executed by such Purchaser, and
when delivered by such Purchaser in accordance with the terms hereof, will
constitute the valid and legally binding obligation of such Purchaser,
enforceable against it 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.

(b)           Own
Account.  Such Purchaser understands
that the Securities are “restricted securities” and have not been registered
under the Securities Act or any applicable state securities law and is
acquiring the Securities as principal for its own account and not with a view
to or for distributing or reselling such Securities or any part 

 19
 

 

 

thereof in violation of the Securities Act or any applicable state
securities law, has no present intention of distributing any of such Securities
in violation of the Securities Act or any applicable state securities law and
has no arrangement or understanding with any other persons regarding the
distribution of such Securities (this representation and warranty not limiting
such Purchaser’s right to sell the Securities pursuant to the Registration
Statement or otherwise in compliance with applicable federal and state
securities laws) in violation of the Securities Act or any applicable state
securities law.  Such Purchaser is
acquiring the Securities hereunder in the ordinary course of its business. Such
Purchaser does not have any agreement or understanding, directly or indirectly,
with any Person to distribute any of the Securities.

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

(d)           Experience
of Such Purchaser.  Such Purchaser,
either alone or together with its representatives, has such knowledge,
sophistication and experience in business and financial matters so as to be
capable of evaluating the merits and risks of the prospective investment in the
Securities, and has so evaluated the merits and risks of such investment.  Such Purchaser is able to bear the economic
risk of an investment in the Securities and, at the present time, is able to
afford a complete loss of such investment.

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

The Company acknowledges
and agrees that each Purchaser does not make or has not made any
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 3.2.

ARTICLE
IV

OTHER
AGREEMENTS OF THE PARTIES

4.1           Transfer Restrictions.

(a)           The
Securities may only be disposed of in compliance with state and federal
securities laws.  In connection with any
transfer of Securities other than pursuant to an effective registration
statement or Rule 144, to the Company or to an affiliate of a Purchaser or in
connection with a pledge as contemplated in Section 4.1(b), the Company may
require the transferor thereof to provide to the Company an opinion of counsel
selected by the transferor and reasonably acceptable to the Company, the form
and 

 20
 

 

 

substance of which opinion shall be reasonably satisfactory to the
Company, to the effect that such transfer does not require registration of such
transferred Securities under the Securities Act.  As a condition of transfer, any such
transferee shall agree in writing to be bound by the terms of this Agreement
and shall have the rights of a Purchaser under this Agreement and the
Registration Rights Agreement.

(b)           The
Purchasers agree to the imprinting, so long as is required by this Section
4.1(b), of a legend on any of the Securities substantially in the following
form:

[NEITHER] THESE SECURITIES [NOR THE SECURITIES INTO
WHICH THESE SECURITIES ARE [EXERCISABLE] [CONVERTIBLE]] HAVE BEEN REGISTERED
WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY
STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE
OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION
NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN
ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL
OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH
SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THESE SECURITIES AND THE
SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH
SECURITIES.

The Company acknowledges and agrees that a Purchaser
may from time to time pledge pursuant to a bona fide margin agreement with a
registered broker-dealer or grant a security interest in some or all of the
Securities to a financial institution that is an “accredited investor” as
defined in Rule 501(a) under the Securities Act and who agrees to be bound by
the provisions of this Agreement and the Registration Rights Agreement and, if
required under the terms of such arrangement, such Purchaser may transfer
pledged or secured Securities to the pledgees or secured parties.  Such a pledge or transfer would not be
subject to approval of the Company and no legal opinion of legal counsel of the
pledgee, secured party or pledgor shall be required in connection therewith.  Further, no notice shall be required of such
pledge.  At the appropriate Purchaser’s
expense, the Company will execute and deliver such reasonable documentation as
a pledgee or secured party of Securities may reasonably request in connection
with a pledge or transfer of the Securities, including, if the Securities are
subject to registration pursuant to the Registration Rights Agreement, the
preparation and filing of any required prospectus supplement under Rule
424(b)(3) under the Securities Act or other applicable provision of the
Securities Act to appropriately amend the list of Selling Stockholders
thereunder.

 21
 

 

 

(c)           Certificates
evidencing the Underlying Shares shall not contain any legend (including the
legend set forth in Section 4.1(b) hereof): (i) while a registration statement
(including the Registration Statement) covering the resale of such security is
effective under the Securities Act, or (ii) following any sale of such
Underlying Shares pursuant to Rule 144, or (iii) if such Underlying Shares are
eligible for sale under Rule 144(k), or (iv) if such legend is not required
under applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the Commission). The
Company shall cause its counsel to issue a legal opinion to the Company’s
transfer agent promptly after the Effective Date if required by the Company’s
transfer agent to effect the removal of the legend hereunder. If all or any
Debentures or any portion of a Warrant is converted or exercised (as
applicable) at a time when there is an effective registration statement to
cover the resale of the Underlying Shares, or if such Underlying Shares may be
sold under Rule 144(k) or if such legend is not otherwise required under
applicable requirements of the Securities Act (including judicial
interpretations thereof) then such Underlying Shares shall be issued free of
all legends.  The Company agrees that
following the Effective Date or at such time as such legend is no longer
required under this Section 4.1(c), it will, no later than three Trading Days
following the delivery by a Purchaser to the Company or the Company’s transfer
agent of a certificate representing Underlying Shares, as applicable, issued
with a restrictive legend (such third Trading Day, the “Legend Removal Date”),
deliver or cause to be delivered to such Purchaser a certificate representing
such shares that is free from all restrictive and other legends.  The Company may not make any notation on its
records or give instructions to any transfer agent of the Company that enlarge
the restrictions on transfer set forth in this Section.  Certificates for Securities subject to legend
removal hereunder shall be transmitted by the transfer agent of the Company to
the Purchasers by crediting the account of the Purchaser’s prime broker with
the Depository Trust Company System.

(d)           In addition to such Purchaser’s other
available remedies, the Company shall pay to a Purchaser, 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 Company’s transfer agent) delivered for removal of the
restrictive legend and subject to Section 4.1(c), $10 per Trading Day
(increasing to $20 per Trading Day 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. 
Nothing herein shall limit such Purchaser’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 Purchaser 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.

(e)            Each Purchaser, severally and not
jointly with the other Purchasers, agrees that the removal of the restrictive
legend from certificates representing Securities as set forth in this Section
4.1 is predicated upon the Company’s reliance that the Purchaser will sell any
Securities pursuant to either the registration requirements of the 

 22
 

 

 

Securities Act, including any applicable prospectus
delivery requirements, or an exemption therefrom.

(f)            Until
the one year anniversary of the Effective Date, the Company shall not undertake
a reverse or forward stock split or reclassification of the Common Stock
without the prior written consent of the Purchasers holding a majority in
interest of the then outstanding Principal Amount of Debentures.

(g)           No
liquidated damages, financial penalty or other remedies provided for under this
Agreement, or any of the other Transaction Documents, in the event of delay in
delivery of share certificates or delay in the de-legending of share
certificates beyond any applicable deadline provided for herein, or therein, by
the Company, shall apply as to a Purchaser in the event such delay is the
result of (i) solely the fault of such Purchaser or (ii) any Force Majeure,
provided that the Company shall continue to use best efforts to cause such
delivery or de-legending as soon as possible.

4.2           Acknowledgment of Dilution.  The Company acknowledges that the issuance of
the Securities may result in dilution of the outstanding shares of Common
Stock, which dilution may be substantial under certain market conditions.  The Company further acknowledges that its
obligations under the Transaction Documents, including without limitation its
obligation to issue the Underlying Shares pursuant to the Transaction
Documents, are unconditional and absolute and not subject to any right of set
off, counterclaim, delay or reduction, regardless of the effect of any such
dilution or any claim the Company may have against any Purchaser and regardless
of the dilutive effect that such issuance may have on the ownership of the
other stockholders of the Company.

4.3           Furnishing of Information.  As long as any Purchaser owns Securities, the
Company covenants to timely file (or obtain extensions in respect thereof and
file within the applicable grace period) all reports required to be filed by
the Company after the date hereof pursuant to the Exchange Act.  As long as any Purchaser owns Securities, if
the Company is not required to file reports pursuant to the Exchange Act, it
will prepare and furnish to the Purchasers and make publicly available in
accordance with Rule 144(c) such information as is required for the Purchasers
to sell the Securities under Rule 144. 
The Company further covenants that it will take such further action as
any holder of Securities may reasonably request, all to the extent required
from time to time to enable such Person to sell such Securities without
registration under the Securities Act within the limitation of the exemptions
provided by Rule 144.

4.4           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 Securities Act) that would be integrated with the
offer or sale of the Securities in a manner that would require the registration
under the Securities Act of the sale of the Securities to the Purchasers or
that would be integrated with the offer or sale of the Securities for purposes
of the rules and regulations of any Trading Market.

 23
 

 

 

4.5           Conversion and Exercise Procedures.  The form of Notice of Exercise included in
the Warrants and the form of Notice of Conversion included in the Debentures
set forth the totality of the procedures required of the Purchasers in order to
exercise the Warrants or convert the Debentures.  No additional legal opinion or other
information or instructions shall be required of the Purchasers to exercise
their Warrants or convert their Debentures. 
The Company shall honor exercises of the Warrants and conversions of the
Debentures and shall deliver Underlying Shares in accordance with the terms,
conditions and time periods set forth in the Transaction Documents.

4.6           Securities Laws Disclosure; Publicity.  The Company shall, by 8:30 a.m. Eastern time
on the Trading Day following the date hereof, issue a Current Report on Form
8-K, reasonably acceptable to each Purchaser disclosing the material terms of
the transactions contemplated hereby, and shall attach the Transaction
Documents thereto.  The Company and each
Purchaser shall consult with each other in issuing any other press releases
with respect to the transactions contemplated hereby, and neither the Company
nor any Purchaser shall issue any such press release or otherwise make any such
public statement without the prior consent of the Company, with respect to any
press release of any Purchaser, or without the prior consent of each Purchaser,
with respect to any press release of the Company, which consent shall not
unreasonably be withheld, except if such disclosure is required by law, in which
case the disclosing party shall promptly provide the other party with prior
notice of such public statement or communication.  Notwithstanding the foregoing, the Company
shall not publicly disclose the name of any Purchaser, or include the name of
any Purchaser in any filing with the Commission or any regulatory agency or
Trading Market, without the prior written consent of such Purchaser, except (i)
as required by federal securities law in connection with the registration
statement contemplated by the Registration Rights Agreement and (ii) to the
extent such disclosure is required by law or Trading Market regulations, in
which case the Company shall provide the Purchasers with prior notice of such
disclosure permitted under subclause (i) or (ii).

4.7           Shareholder Rights Plan.  No claim will be made or enforced by the
Company or, to the knowledge of the Company, any other Person that any
Purchaser is an “Acquiring Person” under any shareholder rights plan or similar
plan or arrangement in effect or hereafter adopted by the Company, or that any
Purchaser could be deemed to trigger the provisions of any such plan or
arrangement, by virtue of receiving Securities under the Transaction Documents
or under any other agreement between the Company and the Purchasers. The
Company shall conduct its business in a manner so that it will not become
subject to the Investment Company Act.

4.8           Non-Public Information.  The Company covenants and agrees that neither
it nor any other Person acting on its behalf will provide any Purchaser or its
agents or counsel with any information that the Company believes constitutes
material non-public information, unless prior thereto such Purchaser shall have
executed a written agreement regarding the confidentiality and use of such
information.  The Company understands and
confirms that each Purchaser shall be relying on the foregoing representations
in effecting transactions in securities of the Company.

4.9           Use of Proceeds.  Except as set forth on Schedule 4.9
attached hereto, the Company shall use the net proceeds from the sale of the
Securities hereunder for working capital purposes and not for the satisfaction
of any portion of the Company’s debt (other than payment

 24

 

 

of trade payables in the ordinary course of
the Company’s business and prior practices), to redeem Common Stock or Common
Stock Equivalents or to settle any outstanding litigation.

4.10         Reimbursement.  If any Purchaser becomes involved in any
capacity in any Proceeding by or against any Person who is a stockholder of the
Company (except as a result of sales, pledges, margin sales and similar
transactions by such Purchaser to or with any current stockholder), solely as a
result of such Purchaser’s acquisition of the Securities under this Agreement,
the Company will reimburse such Purchaser for its reasonable legal and other
expenses (including the cost of any investigation preparation and travel in
connection therewith) incurred in connection therewith, as such expenses are
incurred.  The reimbursement obligations
of the Company under this paragraph shall be in addition to any liability which
the Company may otherwise have, shall extend upon the same terms and conditions
to any Affiliates of the Purchasers who are actually named in such action,
proceeding or investigation, and partners, directors, agents, employees and
controlling persons (if any), as the case may be, of the Purchasers and any
such Affiliate, and shall be binding upon and inure to the benefit of any
successors, assigns, heirs and personal representatives of the Company, the
Purchasers and any such Affiliate and any such Person.  The Company also agrees that neither the
Purchasers nor any such Affiliates, partners, directors, agents, employees or
controlling persons shall have any liability to the Company or any Person
asserting claims on behalf of or in right of the Company solely as a result of
acquiring the Securities under this Agreement. The Purchaser shall not be
entitled to reimbursement for any claims that result from or relate to the
Purchaser’s, its agents’ or employees’ willful misconduct, violation of law,
rule or regulation or violation of any of the terms or provisions of this
Agreement or the other Transaction Documents.

4.11         Indemnification of Purchasers.   Subject to the provisions of this Section
4.11, the Company will indemnify and hold the Purchasers and their directors,
officers, shareholders, members, partners, employees and agents (each, a “Purchaser
Party”) harmless from any and all losses, liabilities, obligations, claims,
contingencies, damages, costs and expenses, including all judgments, amounts
paid in settlements, court costs and reasonable attorneys’ fees and costs of
investigation that any such Purchaser Party may suffer or incur as a result of
or relating to (a) any breach of any of the representations, warranties,
covenants or agreements made by the Company in this Agreement or in the other
Transaction Documents or (b) any action instituted against a Purchaser, or any
of them or their respective Affiliates, by any stockholder of the Company who
is not an Affiliate of such Purchaser, with respect to any of the transactions
contemplated by the Transaction Documents (unless such action is based upon a
breach of such Purchaser’s representations, warranties or covenants under the
Transaction Documents or any agreements or understandings such Purchaser may
have with any such stockholder or any violations by the Purchaser of state or
federal securities laws or any conduct by such Purchaser which constitutes
fraud, gross negligence, willful misconduct or malfeasance).  If any action shall be brought against any
Purchaser Party in respect of which indemnity may be sought pursuant to this Agreement,
such Purchaser Party shall promptly notify the Company in writing, and the
Company shall have the right to assume the defense thereof with counsel of its
own choosing.  Any Purchaser Party shall
have the right to employ separate counsel in any such action and participate in
the defense thereof, but the fees and expenses of such counsel shall be at the
expense of such Purchaser Party except to the extent that (i) the employment
thereof has been specifically authorized by the Company in writing, (ii) the
Company has failed after a reasonable 

 25
 

 

 

period of time to assume such defense and to
employ counsel or (iii) in such action there is, in the reasonable opinion of
such separate counsel, a material conflict on any material issue between the
position of the Company and the position of such Purchaser Party.  The Company will not be liable to any
Purchaser Party under this Agreement (i) for any settlement by a Purchaser
Party effected without the Company’s prior written consent, which shall not be
unreasonably withheld or delayed; or (ii) to the extent, but only to the extent
that a loss, claim, damage or liability is attributable to any Purchaser Party’s
breach of any of the representations, warranties, covenants or agreements made
by the Purchasers in this Agreement or in the other Transaction Documents.

4.12         Reservation and Listing of
Securities.

(a)           The
Company shall maintain a reserve from its duly authorized shares of Common
Stock for issuance pursuant to the Transaction Documents in such amount as may
be required to fulfill its obligations in full under the Transaction Documents.

(b)           If,
on any date, the number of authorized but unissued (and otherwise unreserved)
shares of Common Stock is less than 130% of (i) the Actual Minimum on such
date, minus (ii) the number of shares of Common Stock previously issued
pursuant to the Transaction Documents, then the Board of Directors of the
Company shall use commercially reasonable efforts to amend the Company’s
certificate or articles of incorporation to increase the number of authorized
but unissued shares of Common Stock to at least the Actual Minimum at such time
(minus the number of shares of Common Stock previously issued pursuant to the
Transaction Documents), as soon as possible and in any event not later than the
75th day after such date; provided that the Company will not be required at any
time to authorize a number of shares of Common Stock greater than the maximum
remaining number of shares of Common Stock that could possibly be issued after
such time pursuant to the Transaction Documents.

(c)           The
Company shall, if applicable: (i) in the time and manner required by the
Trading Market, prepare and file with such Trading Market an additional shares
listing application covering a number of shares of Common Stock at least equal
to the Actual Minimum on the date of such application, (ii) take all steps
necessary to cause such shares of Common Stock to be approved for listing on
the Trading Market as soon as possible thereafter, (iii) provide to the
Purchasers evidence of such listing, and (iv) maintain the listing of such
Common Stock on any date at least equal to the Actual Minimum on such date on
such Trading Market or another Trading Market.

4.13         Participation in Future Financing.

(a)           From
the date hereof until the later of (i) the date that the Debentures are no
longer outstanding and (ii) 2 years from the Effective Date, upon any financing
by the Company or any of its Subsidiaries of Common Stock or Common Stock
Equivalents (a “Subsequent Financing”), each Purchaser shall have the
right to participate in up to an amount of the Subsequent Financing equal to
100% of the Subsequent Financing (the “Participation Maximum”).

 26
 

 

 

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

(c)           Any
Purchaser desiring to participate in such Subsequent Financing must provide
written notice to the Company by not later than 5:30 p.m. (New York City time)
on the 5th Trading Day after all of the Purchasers have
received the Pre-Notice that the Purchaser is willing to participate in the
Subsequent Financing, the amount of the Purchaser’s participation, and that the
Purchaser 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
Purchaser as of such 5th Trading Day, such Purchaser shall be deemed to
have notified the Company that it does not elect to participate.

(d)           If
by 5:30 p.m. (New York City time) on the 5th Trading Day after all of the Purchasers
have received the Pre-Notice, notifications by the Purchasers 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.

(e)           If
by 5:30 p.m. (New York City time) on the 5th Trading
Day after all of the Purchasers have received the Pre-Notice, the Company
receives responses to a Subsequent Financing Notice from Purchasers seeking to
purchase more than the aggregate amount of the Participation Maximum, each such
Purchaser shall have the right to purchase the greater of (a) their Pro Rata
Portion (as defined below) of the Participation Maximum and (b) the difference
between the Participation Maximum and the aggregate amount of participation by
all other Purchasers.  “Pro Rata Portion”
is the ratio of (x) the Subscription Amount of Securities purchased on the
Closing Date by a Purchaser participating under this Section 4.13 and (y) the
sum of the aggregate Subscription Amounts of Securities purchased on the
Closing Date by all Purchasers participating under this Section 4.13.

(f)            The
Company must provide the Purchasers with a second Subsequent Financing Notice,
and the Purchasers will again have the right of participation set forth above
in this Section 4.13, if the Subsequent Financing subject to the initial
Subsequent Financing Notice is not consummated for any reason on the terms not
materially more favorable to the investors in the Subsequent Financing than set
forth in such Subsequent 

 27
 

 

 

Financing Notice within 60 Trading Days after the date
of the initial Subsequent Financing Notice.

(g)           Notwithstanding
the foregoing, this Section 4.13 shall not apply in respect of an Exempt
Issuance or a bona fide firm commitment public underwritten offering of the
Common Stock by a nationally recognized investment bank.

4.14         Subsequent Equity Sales.

(a)           From
the date hereof until 90 days after the Effective Date, neither the Company nor
any Subsidiary shall issue shares of Common Stock or Common Stock Equivalents;
provided, however, the 90 day period set forth in this Section 4.14 shall be
extended for the number of Trading Days during such period in which (i) trading
in the Common Stock is suspended by any Trading Market, or (ii) following the
Effective Date, the Registration Statement is not effective or the prospectus
included in the Registration Statement may not be used by the Purchasers for
the resale of the Underlying Shares.

(b)           From
the date hereof until such time as no Purchaser holds any of the Securities,
the Company shall be prohibited from effecting or entering into an agreement to
effect any Subsequent Financing involving a “Variable Rate Transaction”.  The term “Variable Rate Transaction”
shall mean a transaction in which the Company issues or sells (i) any debt or
equity securities that are convertible into, exchangeable or exercisable for,
or include the right to receive additional shares of Common Stock either (A) at
a conversion, exercise or exchange rate or other price that is based upon
and/or varies with the trading prices of or quotations for the shares of Common
Stock at any time after the initial issuance of such debt or equity securities,
or (B) with a conversion, exercise or exchange price that is subject to being
reset at some future date after the initial issuance of such debt or equity
security or upon the occurrence of specified or contingent events directly or
indirectly related to the business of the Company or the market for the Common
Stock or (ii) enters into any agreement, including, but not limited to, an
equity line of credit, whereby the Company may sell securities at a future
determined price.

(c)           From
the date hereof until such time as no Purchaser holds any of the Securities, in
the event the Company issues or sells any shares of Common Stock or Common
Stock Equivalents, if a Purchaser reasonably believes that any of the terms and
conditions thereunder are more favorable to such investors as the terms and
conditions granted hereunder, upon notice to the Company by such Purchaser the
Company shall amend the terms of this transaction as to such Purchaser only so
as to give such Purchaser the benefit of such more favorable terms or
conditions.

(d)           Notwithstanding
the foregoing, this Section 4.14 shall not apply in respect of (i) an Exempt
Issuance, except that no Variable Rate Transaction shall be an Exempt Issuance
or (ii) an issuance of Common Stock or Common Stock Equivalents occurring 

 28
 

 

 

after the Effective Date where the proceeds of such
issuance are used to redeem the Debentures in full.

4.15         Equal Treatment of Purchasers.  No consideration shall be offered or paid to
any person to amend or consent to a waiver or modification of any provision of
any of the Transaction Documents unless the same consideration is also offered
to all of the parties to the Transaction Documents.  Further, the Company shall not make any
payment of principal on the Debenture in amounts which are disproportionate to
the respective principal amounts outstanding on the Debentures at any
applicable time.  For clarification
purposes, this provision constitutes a separate right granted to each Purchaser
by the Company and negotiated separately by each Purchaser, and is intended for
the Company to treat the Purchasers as a class and shall not in any way be
construed as the Purchasers acting in concert or as a group with respect to the
purchase, disposition or voting of Securities or otherwise.

4.16         Short Sales.  Each Purchaser understands and acknowledges,
severally and not jointly with any other Purchaser, that the Commission
currently takes the position that coverage of short sales of shares of the
Common Stock “against the box” prior to the Effective Date of the Registration
Statement with the Securities is a violation of Section 5 of the Securities
Act, as set forth in Item 65, Section 5 under Section A, of the Manual of
Publicly Available Telephone Interpretations, dated July 1997, compiled by the
Office of Chief Counsel, Division of Corporation Finance.  Notwithstanding the foregoing, no Purchaser
makes any representation, warranty or covenant hereby that it will not engage
in Short Sales in the securities of the Company after the time that the
transactions contemplated by this Agreement are first publicly announced as
described in Section 4.6.  Notwithstanding
the foregoing, in the case of a Purchaser that is a multi-managed investment
vehicle whereby separate portfolio managers manage separate portions of such
Purchaser’s assets and the portfolio managers have no direct knowledge of the
investment decisions made by the portfolio managers managing other portions of
such Purchaser’s assets, the covenant set forth above shall only apply with
respect to the portion of assets managed by the portfolio manager that made the
investment decision to purchase the Securities covered by this Agreement.

4.17          [RESERVED].

4.18         [RESERVED].

4.19         [RESERVED].

4.20         Stock Option Plans.  Except as set forth on Schedule 4.20,
the Company shall not issue shares of Common Stock or options to employees,
officers or directors of the Company pursuant to any stock or option plan until
such stock or option plan is duly authorized by a majority of the non-employee
members of the Board of Directors of the Company or a majority of the members
of a committee of non-employee directors established for such purpose.

 29
 

 

 

ARTICLE V

MISCELLANEOUS

5.1           Termination.  This
Agreement may be terminated by any Purchaser, as to such Purchaser’s
obligations hereunder only and without any effect whatsoever on the obligations
between the Company and the other Purchasers, by written notice to the other
parties, if the Closing has not been consummated on or before September 1,
2006; provided, however, that no such termination will affect the
right of any party to sue for any breach by the other party (or parties).

5.2           Fees and Expenses.   At the Closing,
the Company has agreed to reimburse Bristol Investment Fund, Ltd. (“Bristol”)
the non-accountable sum of $7,500, for its out-of-pocket legal fees and
expenses, none of which has been paid prior to the Closing. The Company
shall deliver, prior to the Closing, a completed and executed copy of the
Closing Statement, attached hereto as Annex A.  Except as expressly set forth in the
Transaction Documents to the contrary, each party shall pay the fees and
expenses of its advisers, counsel, accountants and other experts, if any, and
all other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement.  The Company shall pay all transfer agent
fees, stamp taxes and other taxes and duties levied in connection with the
delivery of any Securities.

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

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

5.5           Amendments; Waivers.  No provision of this Agreement may be waived
or amended except in a written instrument signed, in the case of an amendment,
by the Company and each Purchaser or, in the case of a waiver, by the party
against whom enforcement of any such waiver is sought.  No waiver of any default with respect to any
provision, condition or requirement of this Agreement shall be deemed to be a
continuing waiver in the future or a waiver of any subsequent default or a
waiver of any other provision, condition or requirement hereof, nor shall any
delay or omission of either party to exercise any right hereunder in any manner
impair the exercise of any such right.

5.6           Headings.  The headings herein are for convenience only,
do not constitute a part of this Agreement and shall not be deemed to limit or
affect any of the provisions hereof.  The

 30
 

 

 

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.

5.7           Successors and Assigns.  This Agreement shall be binding upon and inure
to the benefit of the parties and their successors and permitted assigns.  The Company may not assign this Agreement or
any rights or obligations hereunder without the prior written consent of each
Purchaser.  Any Purchaser may assign any
or all of its rights under this Agreement to any Person to whom such Purchaser
assigns or transfers any Securities, provided such transferee agrees in writing
to be bound, with respect to the transferred Securities, by the provisions
hereof that apply to the “Purchasers”.

5.8           No Third-Party Beneficiaries.  This Agreement is intended for the benefit of
the parties hereto and their respective successors and permitted assigns and is
not for the benefit of, nor may any provision hereof be enforced by, any other
Person, except as otherwise set forth in Section 4.11.

5.9           Governing Law.  All questions concerning the construction,
validity, enforcement and interpretation of the 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 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 manner permitted by law.  The
parties hereby waive all rights to a trial by jury.  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 attorneys’ fees and other costs and expenses incurred with the
investigation, preparation and prosecution of such action or proceeding.

5.10         Survival.  The representations and warranties contained
herein shall survive the Closing and the delivery, exercise and/or conversion
of the Securities, as applicable for the applicable statue of limitations.

 31
 

 

 

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

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

5.13         Rescission and Withdrawal Right.  Notwithstanding anything to the contrary
contained in (and without limiting any similar provisions of) the Transaction
Documents, whenever any Purchaser exercises a right, election, demand or option
under a Transaction Document and the Company does not timely perform its
related obligations within the periods therein provided, then such Purchaser
may rescind or withdraw, in its sole discretion from time to time upon written
notice to the Company, any relevant notice, demand or election in whole or in
part without prejudice to its future actions and rights; provided, however,
in the case of a rescission of a conversion of the Debentures or exercise of a
Warrant, the Purchaser shall be required to return any shares of Common Stock
subject to any such rescinded conversion or exercise notice.

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

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

5.16         Payment Set Aside. To the extent
that the Company makes a payment or payments to any Purchaser pursuant to any
Transaction Document or a Purchaser enforces or exercises its rights
thereunder, and such payment or payments or the proceeds of such enforcement or
exercise or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside, recovered from, disgorged by or are
required to be refunded, 

 32
 

 

 

repaid or otherwise restored to the Company,
a trustee, receiver or any other person under any law (including, without
limitation, any bankruptcy law, state or federal law, common law or equitable
cause of action), then to the extent of any such restoration the obligation or
part thereof originally intended to be satisfied shall be revived and continued
in full force and effect as if such payment had not been made or such
enforcement or setoff had not occurred.

5.17         Usury.  To the extent it may lawfully do so, the
Company hereby agrees not to insist upon or plead or in any manner whatsoever
claim, and will resist any and all efforts to be compelled to take the benefit
or advantage of, usury laws wherever enacted, now or at any time hereafter in
force, in connection with any claim, action or proceeding that may be brought
by any Purchaser in order to enforce any right or remedy under any Transaction
Document.  Notwithstanding any provision
to the contrary contained in any Transaction Document, it is expressly agreed
and provided that the total liability of the Company under the Transaction
Documents for payments in the nature of interest shall not exceed the maximum
lawful rate authorized under applicable law (the “Maximum Rate”), and,
without limiting the foregoing, in no event shall any rate of interest or
default interest, or both of them, when aggregated with any other sums in the
nature of interest that the Company may be obligated to pay under the
Transaction Documents exceed such Maximum Rate. 
It is agreed that if the maximum contract rate of interest allowed by
law and applicable to the Transaction Documents is increased or decreased by
statute or any official governmental action subsequent to the date hereof, the
new maximum contract rate of interest allowed by law will be the Maximum Rate
applicable to the Transaction Documents from the effective date forward, unless
such application is precluded by applicable law.  If under any circumstances whatsoever,
interest in excess of the Maximum Rate is paid by the Company to any Purchaser
with respect to indebtedness evidenced by the Transaction Documents, such
excess shall be applied by such Purchaser to the unpaid principal balance of any
such indebtedness or be refunded to the Company, the manner of handling such
excess to be at such Purchaser’s election.

5.18         Independent Nature of Purchasers’
Obligations and Rights.  The
obligations of each Purchaser under any Transaction Document are several and
not joint with the obligations of any other Purchaser, and no Purchaser shall
be responsible in any way for the performance of the obligations of any other
Purchaser under any Transaction Document. 
Nothing contained herein or in any Transaction Document, and no action
taken by any Purchaser pursuant thereto, shall be deemed to constitute the
Purchasers as a partnership, an association, a joint venture or any other kind
of entity, or create a presumption that the Purchasers 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 Purchaser 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 Purchaser to be joined as an additional party in any
proceeding for such purpose.  Each
Purchaser has been represented by its own separate legal counsel in their
review and negotiation of the Transaction Documents.  The Company has elected to provide all
Purchasers with the same terms and Transaction Documents for the convenience of
the Company and not because it was required or requested to do so by the
Purchasers.

 33
 

 

 

5.19         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.

5.20         Construction. The parties agree
that each of them and/or their respective counsel has reviewed and had an
opportunity to revise the Transaction Documents and, therefore, the normal rule
of construction to the effect that any ambiguities are to be resolved against
the drafting party shall not be employed in the interpretation of the
Transaction Documents or any amendments hereto.

[SIGNATURE PAGE
FOLLOWS]

 34
 

 

 

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

 

	
  ADVANCED CELL TECHNOLOGY, INC.

  	
  Address for Notice:

  
	
   

  	
   

  
	
   

  	
  1201 Bay Harbor Parkway,

  Alameda, California 94502

  
	
   

  	
  Attn:

  
	
  By:

  	
  /s/ William M. Caldwell, IV

  	
   

  	
  Fax:

  
	
        Name:

  	
   

  
	
       
  Title:

  	
   

  
	
   

  	
   

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

  	
   

  
				

 

 

[REMAINDER OF PAGE
INTENTIONALLY LEFT BLANK

SIGNATURE PAGE FOR
PURCHASER FOLLOWS]

 35
 

 

 

[PURCHASER
SIGNATURE PAGES TO ACTC SECURITIES PURCHASE AGREEMENT]

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

Name of Purchaser: 

Signature of Authorized Signatory of Purchaser:

Name of Authorized Signatory:

Title of Authorized Signatory: 

Email Address of
Purchaser:

Address for Notice of
Purchaser:

 

Address for Delivery of
Securities for Purchaser (if not same as above):

 

Subscription Amount (0.7968 x Principal Amount):

Principal Amount (1.255 x Subscription Amount):

Warrant Shares:

[SIGNATURE PAGES CONTINUE]

 36
 

 

 

Annex A

CLOSING
STATEMENT

Pursuant to the
attached Securities Purchase Agreement, dated as of the date hereto, the
purchasers shall purchase up to $11,250,000 Principal Amount of Debentures and
Warrants from Advanced Cell Technology, Inc., a Delaware corporation (the “Company”).  All funds will be wired into a trust account
maintained by Pierce Atwood, counsel to the Company.  All funds will be disbursed in accordance
with this Closing Statement.

Disbursement
Date:           August      ,
2006

I.   PURCHASE PRICE

 

	
  Gross Proceeds to be Received in Trust

  	
   

  	
  $

  

 

II.    DISBURSEMENTS

 

	
  TR Winston & Company

  	
   

  	
  $

  
	
   

  	
   

  	
  $

  
	
  Feldman Weinstein, LLP (counsel to Bristol)

  	
   

  	
  $

  	
  7,500

  
	
   

  	
   

  	
  $

  
	
   

  	
   

  	
  $

  
	
   

  	
   

  	
   

  
	
  Total
  Amount Disbursed:

  	
   

  	
  $

  

 

 

WIRE INSTRUCTIONS:

 

 

To: 

 37
 

 

 

SCHEDULE A

List of additional
documents deemed “Transaction Documents”:

Lock-Up Agreements
executed by officers and directors of the Company.

Disclosure Schedules to the Transaction Documents.

 38Exhibit 10.2

 

REGISTRATION RIGHTS AGREEMENT

This
Registration Rights Agreement (this “Agreement”) is made and entered
into as of August 30, 2006 among Advanced Cell Technology, Inc., a Delaware
corporation (the “Company”), and the purchasers signatory hereto (each
such purchaser is a “Purchaser” and collectively, the “Purchasers”).

This
Agreement is made pursuant to the Securities Purchase Agreement, dated as of
the date hereof among the Company and the Purchasers (the “Purchase
Agreement”).

The
Company and the Purchasers hereby agree as follows:

1. Definitions

Capitalized terms used and not otherwise defined herein that
are defined in the Purchase Agreement shall have the meanings given such terms
in the Purchase Agreement. As used in this Agreement, the following
terms shall have the following meanings:

“Advice” shall
have the meaning set forth in Section 6(d).

“Effectiveness Date”
means, with respect to the initial Registration Statement required to be filed
hereunder, the earlier of (i) the 60th calendar day following the date hereof or (ii)
the 40th calendar day following the date such initial
Registration Statement is first filed with the Commission and, with respect to
any additional Registration Statements which may be required pursuant to
Section 3(c), the 75th calendar day following the date on which the
Company first knows, or reasonably should have known, that such additional
Registration Statement is required hereunder; provided, however,
in the event the Company is notified by the Commission that one of the above
Registration Statements will not be reviewed or is no longer subject to further
review and comments, the Effectiveness Date as to such Registration Statement
shall be the fifth Trading Day following the date on which the Company is so notified
if such date precedes the dates required above.

“Effectiveness Period”
shall have the meaning set forth in Section 2(a).

“Event” shall have
the meaning set forth in Section 2(b).

“Event Date” shall
have the meaning set forth in Section 2(b).

“Filing Date”
means, with respect to the initial Registration Statement required hereunder,
the 20th calendar day following the date hereof and,
with respect to any additional Registration Statements which may be required
pursuant to Section 3(c), the 30th day following the date on which the Company
first knows, or reasonably should have known that such additional Registration
Statement is required hereunder.

 1
 

 

 

“Holder” or “Holders”
means the holder or holders, as the case may be, from time to time of
Registrable Securities.

“Indemnified Party”
shall have the meaning set forth in Section 5(c).

 “Indemnifying Party” shall have the
meaning set forth in Section 5(c).

“Losses” shall
have the meaning set forth in Section 5(a).

“Plan of Distribution”
shall have the meaning set forth in Section 2(a).

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

“Prospectus” means
the prospectus included in a Registration Statement (including, without
limitation, a prospectus that includes any information previously omitted from
a prospectus filed as part of an effective registration statement in reliance
upon Rule 430A promulgated under the Securities Act), as amended or
supplemented by any prospectus supplement, with respect to the terms of the
offering of any portion of the Registrable Securities covered by a Registration
Statement, and all other amendments and supplements to the Prospectus,
including post-effective amendments, and all material incorporated by reference
or deemed to be incorporated by reference in such Prospectus.

“Registrable
Securities” means, as of the date in question, (i) all of the shares of
Common Stock issuable upon conversion in full of the Debentures, (ii) all
Warrant Shares, (iv) any securities issued or issuable upon any stock split,
dividend or other distribution, recapitalization or similar event with respect
to the foregoing and (iii) any additional shares issuable in connection with
any anti-dilution provisions associated with the Debentures and Warrants (in
each case, without giving effect to any limitations on conversion set forth in
the Debentures or limitations on exercise set forth in the Warrant).

“Registration
Statement” means the registration statements required to be filed hereunder
and any additional registration statements contemplated by Section 3(c),
including (in each case) the Prospectus, amendments and supplements to such
registration statement or Prospectus, including pre- and post-effective
amendments, all exhibits thereto, and all material incorporated by reference or
deemed to be incorporated by reference in such registration statement.

“Rule 415” means
Rule 415 promulgated by the Commission pursuant to the Securities Act, as such
Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the Commission having substantially the same purpose and
effect as such Rule.

“Rule 424” means
Rule 424 promulgated by the Commission pursuant to the Securities Act, as such
Rule may be amended from time to time, or any similar rule or 

 2
 

 

 

regulation hereafter adopted by the Commission having
substantially the same purpose and effect as such Rule.

“Selling Shareholder
Questionnaire” shall have the meaning set forth in Section 3(a).

2. Shelf
Registration

(a)  On or prior to each Filing Date, the Company
shall prepare and file with the Commission a “Shelf” Registration Statement
covering the resale of 130% of the Registrable Securities on such Filing Date
for an offering to be made on a continuous basis pursuant to Rule 415.  The Registration Statement shall be on Form
S-3 (except if the Company is not then eligible to register for resale the
Registrable Securities on Form S-3, in which case such registration shall be on
another appropriate form in accordance herewith) and shall contain (unless
otherwise directed by the Holders) substantially the “Plan of Distribution”
attached hereto as Annex A. 
Subject to the terms of this Agreement, the Company shall use its best
efforts to cause a Registration Statement to be declared effective under the
Securities Act as promptly as possible after the filing thereof, but in any
event prior to the applicable Effectiveness Date, and shall use its best
efforts to keep such Registration Statement continuously effective under the
Securities Act until all Registrable Securities covered by such Registration
Statement have been sold or may be sold without volume restrictions pursuant to
Rule 144(k) as determined by the counsel to the Company pursuant to a written
opinion letter to such effect, addressed and acceptable to the Company’s
transfer agent and the affected Holders (the “Effectiveness Period”).  The Company shall telephonically request
effectiveness of a Registration Statement as of 5:00 pm Eastern Time on a
Trading Day.   The Company shall
immediately notify the Holders via facsimile of the effectiveness of a
Registration Statement on the same Trading Day that the Company telephonically
confirms effectiveness with the Commission, which shall be the date requested
for effectiveness of a Registration Statement. 
The Company shall, by 9:30 am Eastern Time on the Trading Day after the
Effective Date (as defined in the Purchase Agreement), file a Form 424(b)(5)
with the Commission.  Failure to so
notify the Holder within 1 Trading Day of such notification shall be deemed an
Event under Section 2(b).

(b) If: (i) a
Registration Statement is not filed on or prior to its Filing Date (if the
Company files a Registration Statement without affording the Holders the
opportunity to review and comment on the same as required by Section 3(a), the
Company shall not be deemed to have satisfied this clause (i)), or (ii) the
Company fails to file with the Commission a request for acceleration in
accordance with Rule 461 promulgated under the Securities Act, within five
Trading Days of the date that the Company is notified (orally or in writing,
whichever is earlier) by the Commission that a Registration Statement will not
be “reviewed,” or not subject to further review, or (iii) prior to its
Effectiveness Date, the Company fails to file a pre-effective amendment and
otherwise respond in writing to comments made by the Commission in respect of
such Registration Statement within 10 calendar days after the receipt of
comments by or notice from the Commission that such amendment is required in
order for a Registration Statement to be declared effective, or (iv) a
Registration Statement filed or required to be filed hereunder is not declared
effective by the Commission by its Effectiveness Date, or (v) after the
Effectiveness Date, a Registration Statement ceases for any reason to remain
continuously 

 3
 

 

 

effective as to all
Registrable Securities for which it is required to be effective, or the Holders
are not permitted to utilize the Prospectus therein to resell such Registrable
Securities for 10 consecutive calendar days but no more than an aggregate of 15
calendar days during any 12-month period (which need not be consecutive Trading
Days) (any such failure or breach being referred to as an “Event”, and for purposes of
clause (i) or (iv) the date on which such Event occurs, or for purposes of
clause (ii) the date on which such five Trading Day period is exceeded, or for
purposes of clause (iii) the date which such 10 calendar day period is
exceeded, or for purposes of clause (v) the date on which such 10 or 15
calendar day period, as applicable, is exceeded being referred to as “Event Date”), then in addition
to any other rights the Holders may have hereunder or under applicable law, on
each such Event Date and on each monthly anniversary of each such Event Date
(if the applicable Event shall not have been cured by such date) until the
applicable Event is cured, the Company shall pay to each Holder an amount in
cash, as partial liquidated damages and not as a penalty, equal to 1.5% of the
aggregate purchase price paid by such Holder pursuant to the Purchase Agreement
for any Registrable Securities then held by such Holder.  If the Company fails to pay any partial
liquidated damages pursuant to this Section in full within seven days after the
date payable, the Company will pay interest thereon at a rate of 18% per annum
(or such lesser maximum amount that is permitted to be paid by applicable law)
to the Holder, accruing daily from the date such partial liquidated damages are
due until such amounts, plus all such interest thereon, are paid in full. The
partial liquidated damages pursuant to the terms hereof shall apply on a daily pro-rata
basis for any portion of a month prior to the cure of an Event.

        3. Registration Procedures.

               In connection with the Company’s
registration obligations hereunder, the Company shall:

(a)           Not
less than five Trading Days prior to the filing of each Registration Statement
or any related Prospectus or any amendment or supplement thereto (including any
document that would be incorporated or deemed to be incorporated therein by
reference), the Company shall, (i) furnish to each Holder copies of all such
documents proposed to be filed, which documents (other than those incorporated
or deemed to be incorporated by reference) will be subject to the review of
such Holders, and (ii) cause its officers and directors, counsel and
independent certified public accountants to respond to such inquiries as shall
be necessary, in the reasonable opinion of respective counsel to conduct a
reasonable investigation within the meaning of the Securities Act. The Company
shall not file a Registration Statement or any such Prospectus or any
amendments or supplements thereto to which the Holders of a majority of the
Registrable Securities shall reasonably object in good faith, provided that,
the Company is notified of such objection in writing no later than 5 Trading
Days after the Holders have been so furnished copies of such documents. Each
Holder agrees to furnish to the Company a completed Questionnaire in the form
attached to this Agreement as Annex B (a “Selling Shareholder Questionnaire”)
not less than two Trading Days prior to the Filing Date or by the end of the
fourth Trading Day following the date on which such Holder receives draft
materials in accordance with this Section.

(b)           (i)
Prepare and file with the Commission such amendments, including post-effective
amendments, to a Registration Statement and the Prospectus used in connection 

 4
 

 

 

therewith
as may be necessary to keep a Registration Statement continuously effective as
to the applicable Registrable Securities for the Effectiveness Period and prepare
and file with the Commission such additional Registration Statements in order
to register for resale under the Securities Act all of the Registrable
Securities; (ii) cause the related Prospectus to be amended or supplemented by
any required Prospectus supplement (subject to the terms of this Agreement),
and as so supplemented or amended to be filed pursuant to Rule 424; (iii)
respond as promptly as reasonably possible to any comments received from the
Commission with respect to a Registration Statement or any amendment thereto
and as promptly as reasonably possible provide the Holders true and complete
copies of all correspondence from and to the Commission relating to a
Registration Statement; and (iv) comply in all material respects with the
provisions of the Securities Act and the Exchange Act with respect to the
disposition of all Registrable Securities covered by a Registration Statement
during the applicable period in accordance (subject to the terms of this
Agreement) with the intended methods of disposition by the Holders thereof set
forth in such Registration Statement as so amended or in such Prospectus as so
supplemented.

(c)           If
during the Effectiveness Period, the number of Registrable Securities at any
time exceeds 90% of the number of shares of Common Stock then registered in a
Registration Statement, then the Company shall file as soon as reasonably
practicable but in any case prior to the applicable Filing Date, an additional
Registration Statement covering the resale by the Holders of not less than 130%
of the number of such Registrable Securities.

(d)           Notify
the Holders of Registrable Securities to be sold (which notice shall, pursuant
to clauses (ii) through (vi) hereof, be accompanied by an instruction to
suspend the use of the Prospectus until the requisite changes have been made)
as promptly as reasonably possible (and, in the case of (i)(A) below, not less
than five Trading Days prior to such filing) and (if requested by any such
Person) confirm such notice in writing no later than one Trading Day following
the day (i)(A) when a Prospectus or any Prospectus supplement or post-effective
amendment to a Registration Statement is proposed to be filed; (B) when the
Commission notifies the Company whether there will be a “review” of such Registration
Statement and whenever the Commission comments in writing on such Registration
Statement (the Company shall provide true and complete copies thereof and all
written responses thereto to each of the Holders); and (C) with respect to a
Registration Statement or any post-effective amendment, when the same has
become effective; (ii) of any request by the Commission or any other Federal or
state governmental authority for amendments or supplements to a Registration
Statement or Prospectus or for additional information; (iii) of the issuance by
the Commission or any other federal or state governmental authority of any stop
order suspending the effectiveness of a Registration Statement covering any or
all of the Registrable Securities or the initiation of any Proceedings for that
purpose; (iv) of the receipt by the Company of any notification with respect to
the suspension of the qualification or exemption from qualification of any of
the Registrable Securities for sale in any jurisdiction, or the initiation or
threatening of any Proceeding for such purpose; (v) of the occurrence of any
event or passage of time that makes the financial statements included in a
Registration Statement ineligible for inclusion therein or any statement made
in a Registration Statement or Prospectus or any document incorporated or
deemed to be incorporated therein by reference untrue in any material respect
or that requires any revisions to a Registration Statement, Prospectus or other
documents so that, in the case of a Registration 

 5
 

 

 

Statement
or the Prospectus, as the case may be, it will not contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; and (vi) the
occurrence or existence of any pending corporate development with respect to
the Company that the Company believes may be material and that, in the
determination of the Company, makes it not in the best interest of the Company
to allow continued availability of a Registration Statement or Prospectus;
provided that any and all of such information shall remain confidential to each
Holder until such information otherwise becomes public, unless disclosure by a
Holder is required by law; provided, further, notwithstanding
each Holder’s agreement to keep such information confidential, the Holders make
no acknowledgement that any such information is material, non-public
information.

(e)           Use its best efforts to avoid the issuance
of, or, if issued, obtain the withdrawal of (i) any order suspending the
effectiveness of a Registration Statement, or (ii) any suspension of the
qualification (or exemption from qualification) of any of the Registrable
Securities for sale in any jurisdiction, at the earliest practicable moment.

(f)            Furnish
to each Holder, without charge, at least one conformed copy of each such
Registration Statement and each amendment thereto, including financial
statements and schedules, all documents incorporated or deemed to be
incorporated therein by reference to the extent requested by such Person, and
all exhibits to the extent requested by such Person (including those previously
furnished or incorporated by reference) promptly after the filing of such
documents with the Commission.

(g)           Promptly
deliver to each Holder, without charge, as many copies of the Prospectus or
Prospectuses (including each form of prospectus) and each amendment or
supplement thereto as such Persons may reasonably request in connection with
resales by the Holder of Registrable Securities.  Subject to the terms of this Agreement, the
Company hereby consents to the use of such Prospectus and each amendment or
supplement thereto by each of the selling Holders in connection with the
offering and sale of the Registrable Securities covered by such Prospectus and
any amendment or supplement thereto, except after the giving on any notice
pursuant to Section 3(d).

(h)           If
NASDR Rule 2710 requires any broker-dealer to make a filing prior to executing
a sale by a Holder, the Company shall (i) make an Issuer Filing with the NASDR,
Inc. Corporate Financing Department pursuant to NASDR Rule 2710(b)(10)(A)(i),
(ii) respond within five Trading Days to any comments received from NASDR in
connection therewith, and (iii) pay the filing fee required in connection
therewith.

(i)            Prior
to any resale of Registrable Securities by a Holder, use its commercially
reasonable efforts to register or qualify or cooperate with the selling Holders
in connection with the registration or qualification (or exemption from the
Registration or qualification) of such Registrable Securities for the resale by
the Holder under the securities or Blue Sky laws of such jurisdictions within
the United States as any Holder reasonably requests in writing, to keep each
registration or qualification (or exemption therefrom) effective during the
Effectiveness Period and to do any and all other acts or things reasonably
necessary to enable the disposition in such 

 6
 

 

 

jurisdictions
of the Registrable Securities covered by each Registration Statement; provided,
that the Company shall not be required to qualify generally to do business in
any jurisdiction where it is not then so qualified, subject the Company to any
material tax in any such jurisdiction where it is not then so subject or file a
general consent to service of process in any such jurisdiction.

(j)            If
requested by the Holders, cooperate with the Holders to facilitate the timely
preparation and delivery of certificates representing Registrable Securities to
be delivered to a transferee pursuant to a Registration Statement, which
certificates shall be free, to the extent permitted by the Purchase Agreement,
of all restrictive legends, and to enable such Registrable Securities to be in
such denominations and registered in such names as any such Holders may
request.

(k)           Upon
the occurrence of any event contemplated by this Section 3, as promptly as
reasonably possible under the circumstances taking into account the Company’s
good faith assessment of any adverse consequences to the Company and its
stockholders of the premature disclosure of such event, prepare a supplement or
amendment, including a post-effective amendment, to a Registration Statement or
a supplement to the related Prospectus or any document incorporated or deemed
to be incorporated therein by reference, and file any other required document
so that, as thereafter delivered, neither a Registration Statement nor such
Prospectus will contain an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. If the Company notifies the Holders in accordance with clauses (ii)
through (vi) of Section 3(d) above to suspend the use of any Prospectus until
the requisite changes to such Prospectus have been made, then the Holders shall
suspend use of such Prospectus.  The
Company will use its best efforts to ensure that the use of the Prospectus may
be resumed as promptly as is practicable. 
The Company shall be entitled to exercise its right under this Section
3(k) to suspend the availability of a Registration Statement and Prospectus, subject
to the payment of partial liquidated damages pursuant to Section 2(b), for a
period not to exceed 60 days (which need not be consecutive days) in any 12
month period.

(l)            Comply
with all applicable rules and regulations of the Commission.

(m)          The
Company may require each selling Holder to furnish to the Company a certified
statement as to the number of shares of Common Stock beneficially owned by such
Holder and, if required by the Commission, the person thereof that has voting
and dispositive control over the Shares. During any periods that the Company is
unable to meet its obligations hereunder with respect to the registration of
the Registrable Securities solely because any Holder fails to furnish such
information within three Trading Days of the Company’s request, any liquidated
damages that are accruing at such time as to such Holder only shall be tolled
and any Event that may otherwise occur solely because of such delay shall be
suspended as to such Holder only, until such information is delivered to the
Company.

        4. Registration Expenses. All
fees and expenses incident to the performance of or compliance with this
Agreement by the Company shall be borne by the Company whether or not any
Registrable Securities are sold pursuant to a Registration Statement. The fees
and expenses referred to in the foregoing sentence shall include, without
limitation, (i) all registration and 

 7
 

 

 

filing fees
(including, without limitation, fees and expenses (A) with respect to filings
required to be made with the Trading Market on which the Common Stock is then
listed for trading, (B) in compliance with applicable state securities or Blue
Sky laws reasonably agreed to by the Company in writing (including, without
limitation, fees and disbursements of counsel for the Company in connection
with Blue Sky qualifications or exemptions of the Registrable Securities and
determination of the eligibility of the Registrable Securities for investment
under the laws of such jurisdictions as requested by the Holders) and (C) if
not previously paid by the Company in connection with an Issuer Filing, with
respect to any filing that may be required to be made by any broker through
which a Holder intends to make sales of Registrable Securities with NASD
Regulation, Inc. pursuant to the NASD Rule 2710, so long as the broker is
receiving no more than a customary brokerage commission in connection with such
sale, (ii) printing expenses (including, without limitation, expenses of
printing certificates for Registrable Securities and of printing prospectuses
if the printing of prospectuses is reasonably requested by the holders of a
majority of the Registrable Securities included in a Registration Statement),
(iii) messenger, telephone and delivery expenses, (iv) fees and disbursements
of counsel for the Company, (v) Securities Act liability insurance, if the
Company so desires such insurance, and (vi) fees and expenses of all other
Persons retained by the Company in connection with the consummation of the
transactions contemplated by this Agreement. 
In addition, the Company shall be responsible for all of its internal
expenses incurred in connection with the consummation of the transactions
contemplated by this Agreement (including, without limitation, all salaries and
expenses of its officers and employees performing legal or accounting duties),
the expense of any annual audit and the fees and expenses incurred in
connection with the listing of the Registrable Securities on any securities
exchange as required hereunder.  In no
event shall the Company be responsible for any broker or similar commissions
or, except to the extent provided for in the Transaction Documents, any legal
fees or other costs of the Holders.

        5. Indemnification

               (a) Indemnification by the Company. The Company shall,
notwithstanding any termination of this Agreement, indemnify and hold harmless
each Holder, the officers, directors, agents, brokers (including brokers who
offer and sell Registrable Securities as principal as a result of a pledge or
any failure to perform under a margin call of Common Stock), investment
advisors and employees of each of them, each Person who controls any such
Holder (within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act) and the officers, directors, agents and employees of each
such controlling Person, to the fullest extent permitted by applicable law,
from and against any and all losses, claims, damages, liabilities, costs
(including, without limitation, reasonable attorneys’ fees) and expenses
(collectively, “Losses”), as incurred, arising out of or relating to any
untrue or alleged untrue statement of a material fact contained in a
Registration Statement, any Prospectus or any form of prospectus or in any
amendment or supplement thereto or in any preliminary prospectus, or arising
out of or relating to any omission or alleged omission of a material fact
required to be stated therein or necessary to make the statements therein (in
the case of any Prospectus or form of prospectus or supplement thereto, in
light of the circumstances under which they were made) not misleading, except
to the extent, but only to the extent, that (i) such untrue statements or
omissions are based solely upon information regarding such Holder furnished in
writing to the Company by such Holder expressly for use therein, or to the
extent that such information relates to such Holder or 

 8
 

 

 

such Holder’s
proposed method of distribution of Registrable Securities and was reviewed and
expressly approved in writing by such Holder expressly for use in a Registration
Statement, such Prospectus or such form of Prospectus or in any amendment or
supplement thereto (it being understood that the Holder has approved Annex A
hereto for this purpose) or (ii) in the case of an occurrence of an event of
the type specified in Section 3(d)(ii)-(vi), the use by such Holder of an
outdated or defective Prospectus after the Company has notified such Holder in
writing that the Prospectus is outdated or defective and prior to the receipt
by such Holder of the Advice contemplated in Section 6(d).  The Company shall notify the Holders promptly
of the institution, threat or assertion of any Proceeding arising from or in
connection with the transactions contemplated by this Agreement of which the Company
is aware.

               (b) Indemnification by Holders. Each Holder shall, severally and
not jointly, indemnify and hold harmless the Company, its directors, officers,
agents and employees, each Person who controls the Company (within the meaning
of Section 15 of the Securities Act and Section 20 of the Exchange Act), and
the directors, officers, agents or employees of such controlling Persons, to
the fullest extent permitted by applicable law, from and against all Losses, as
incurred, to the extent arising out of or based solely upon: (x) such Holder’s
failure to comply with the prospectus delivery requirements of the Securities
Act or (y) any untrue or alleged untrue statement of a material fact contained
in any Registration Statement, any Prospectus, or any form of prospectus, or in
any amendment or supplement thereto or in any preliminary prospectus, or
arising out of or relating to any omission or alleged omission of a material
fact required to be stated therein or necessary to make the statements therein
not misleading (i) to the extent, but only to the extent, that such untrue
statement or omission is contained in any information so furnished in writing
by such Holder to the Company specifically for inclusion in such Registration
Statement or such Prospectus or (ii) to the extent that (1) such untrue
statements or omissions are based solely upon information regarding such Holder
furnished in writing to the Company by such Holder expressly for use therein,
or to the extent that such information relates to such Holder or such Holder’s
proposed method of distribution of Registrable Securities and was reviewed and
expressly approved in writing by such Holder expressly for use in a
Registration Statement (it being understood that the Holder has approved Annex
A hereto for this purpose), such Prospectus or such form of Prospectus or in
any amendment or supplement thereto or (2) in the case of an occurrence of an
event of the type specified in Section 3(d)(ii)-(vi), the use by such Holder of
an outdated or defective Prospectus after the Company has notified such Holder
in writing that the Prospectus is outdated or defective and prior to the
receipt by such Holder of the Advice contemplated in Section 6(d). In no event
shall the liability of any selling Holder hereunder be greater in amount than the
dollar amount of the net proceeds received by such Holder upon the sale of the
Registrable Securities giving rise to such indemnification obligation.

               (c) Conduct of Indemnification Proceedings. If any Proceeding
shall be brought or asserted against any Person entitled to indemnity hereunder
(an “Indemnified Party”), such Indemnified Party shall promptly notify
the Person from whom indemnity is sought (the “Indemnifying Party”) in
writing, and the Indemnifying Party shall have the right to assume the defense
thereof, including the employment of counsel reasonably satisfactory to the
Indemnified Party and the payment of all fees and expenses incurred in
connection with defense thereof; provided, that the failure of any Indemnified
Party to give such notice shall not relieve the 

 9
 

 

 

Indemnifying Party
of its obligations or liabilities pursuant to this Agreement, except (and only)
to the extent that it shall be finally determined by a court of competent
jurisdiction (which determination is not subject to appeal or further review)
that such failure shall have prejudiced the Indemnifying Party.

               An Indemnified Party shall have
the right to employ separate counsel in any such Proceeding and to participate
in the defense thereof, but the fees and expenses of such counsel shall be at
the expense of such Indemnified Party or Parties unless:  (1) the Indemnifying Party has agreed in
writing to pay such fees and expenses; (2) the Indemnifying Party shall have
failed promptly to assume the defense of such Proceeding and to employ counsel
reasonably satisfactory to such Indemnified Party in any such Proceeding; or
(3) the named parties to any such Proceeding (including any impleaded parties)
include both such Indemnified Party and the Indemnifying Party, and such
Indemnified Party shall reasonably believe that a material conflict of interest
is likely to exist if the same counsel were to represent such Indemnified Party
and the Indemnifying Party (in which case, if such Indemnified Party notifies
the Indemnifying Party in writing that it elects to employ separate counsel at
the expense of the Indemnifying Party, the Indemnifying Party shall not have
the right to assume the defense thereof and the reasonable fees and expenses of
one separate counsel shall be at the expense of the Indemnifying Party).  The Indemnifying Party shall not be liable
for any settlement of any such Proceeding effected without its written consent,
which consent shall not be unreasonably withheld.  No Indemnifying Party shall, without the
prior written consent of the Indemnified Party, effect any settlement of any
pending Proceeding in respect of which any Indemnified Party is a party, unless
such settlement includes an unconditional release of such Indemnified Party
from all liability on claims that are the subject matter of such Proceeding.

               Subject to the terms of this
Agreement, all reasonable fees and expenses of the Indemnified Party (including
reasonable fees and expenses to the extent incurred in connection with
investigating or preparing to defend such Proceeding in a manner not
inconsistent with this Section) shall be paid to the Indemnified Party, as
incurred, within ten Trading Days of written notice thereof to the Indemnifying
Party; provided, that the Indemnified Party shall promptly reimburse the
Indemnifying Party for that portion of such fees and expenses applicable to
such actions for which such Indemnified Party is not entitled to
indemnification hereunder, determined based upon the relative faults of the
parties.

               (d) Contribution. If the indemnification under Section 5(a) or
5(b) is unavailable to an Indemnified Party or insufficient to hold an
Indemnified Party harmless for any Losses, then each Indemnifying Party shall
contribute to the amount paid or payable by such Indemnified Party, in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party and Indemnified Party in connection with the actions, statements or
omissions that resulted in such Losses as well as any other relevant equitable
considerations. The relative fault of such Indemnifying Party and Indemnified
Party shall be determined by reference to, among other things, whether any
action in question, including any untrue or alleged untrue statement of a
material fact or omission or alleged omission of a material fact, has been
taken or made by, or relates to information supplied by, such Indemnifying
Party or Indemnified Party, and the parties’ relative intent, knowledge, access
to information and opportunity to correct or prevent such action, statement or
omission.  The amount paid or payable by
a party as a result of any 

 10
 

 

 

Losses shall be
deemed to include, subject to the limitations set forth in this Agreement, any
reasonable attorneys’ or other reasonable fees or expenses incurred by such
party in connection with any Proceeding to the extent such party would have
been indemnified for such fees or expenses if the indemnification provided for
in this Section was available to such party in accordance with its terms.

               The parties hereto agree that it
would not be just and equitable if contribution pursuant to this Section 5(d)
were determined by pro rata allocation or by any other method of allocation
that does not take into account the equitable considerations referred to in the
immediately preceding paragraph. 
Notwithstanding the provisions of this Section 5(d), no Holder shall be
required to contribute, in the aggregate, any amount in excess of the amount by
which the proceeds actually received by such Holder from the sale of the
Registrable Securities subject to the Proceeding exceeds the amount of any
damages that such Holder has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission, except in
the case of fraud by such Holder.

               The indemnity and contribution
agreements contained in this Section are in addition to any liability that the
Indemnifying Parties may have to the Indemnified Parties.

        6. Miscellaneous

(a)       Remedies.  In the event of a breach by the Company or by
a Holder, of any of their obligations under this Agreement, each Holder or the
Company, as the case may be, in addition to being entitled to exercise all
rights granted by law and under this Agreement, including recovery of damages,
will be entitled to specific performance of its rights under this
Agreement.  The Company and each Holder
agree that monetary damages would not provide adequate compensation for any
losses incurred by reason of a breach by it of any of the provisions of this
Agreement and hereby further agrees that, in the event of any action for
specific performance in respect of such breach, it shall waive the defense that
a remedy at law would be adequate.

(b)       No Piggyback on Registrations.
Except as set forth on Schedule 6(b) attached hereto, neither the
Company nor any of its security holders (other than the Holders in such
capacity pursuant hereto) may include securities of the Company in the initial
Registration Statement other than the Registrable Securities.  No Person has any right to cause the Company
to effect the registration under the Securities Act of any securities of the
Company.  The Company shall not file any
other registration statements until the initial Registration Statement required
hereunder is declared effective by the Commission, provided that this Section
6(b) shall not prohibit the Company from filing amendments to registration
statements already filed.  Until there
are no longer any Registrable Securities outstanding, the Company shall not
file any other registration statements registering for resale Common Stock,
Common Stock underlying Common Stock Equivalents and Common Stock Equivalents
that are outstanding on the date hereof.

 11
 

 

 

(c)       Compliance. Each Holder covenants
and agrees that it will comply with the prospectus delivery requirements of the
Securities Act as applicable to it in connection with sales of Registrable
Securities pursuant to a Registration Statement.

(d)       Discontinued Disposition. Each
Holder agrees by its acquisition of such Registrable Securities that, upon
receipt of a notice from the Company of the occurrence of any event of the kind
described in Section 3(d), such Holder will forthwith discontinue disposition
of such Registrable Securities under a Registration Statement until such Holder’s
receipt of the copies of the supplemented Prospectus and/or amended
Registration Statement, or until it is advised in writing (the “Advice”)
by the Company that the use of the applicable Prospectus may be resumed, and,
in either case, has received copies of any additional or supplemental filings
that are incorporated or deemed to be incorporated by reference in such
Prospectus or Registration Statement. 
The Company will use its best efforts to ensure that the use of the
Prospectus may be resumed as promptly as it practicable.  The Company agrees and acknowledges that any
periods during which the Holder is required to discontinue the disposition of
the Registrable Securities hereunder shall be subject to the provisions of
Section 2(b).

(e)       Piggy-Back Registrations. If at
any time during the Effectiveness Period there is not an effective Registration
Statement covering all of the Registrable Securities and the Company shall
determine to prepare and file with the Commission a registration statement
relating to an offering for its own account or the account of others under the
Securities Act of any of its equity securities, other than on Form S-4 or Form
S-8 (each as promulgated under the Securities Act) or their then equivalents
relating to equity securities to be issued solely in connection with any
acquisition of any entity or business or equity securities issuable in
connection with the stock option or other employee benefit plans, then the Company
shall send to each Holder a written notice of such determination and, if within
fifteen days after the date of such notice, any such Holder shall so request in
writing, the Company shall include in such registration statement all or any
part of such Registrable Securities such Holder requests to be registered; provided,
however, that, the Company shall not be required to register any
Registrable Securities pursuant to this Section 6(e) that are eligible for
resale pursuant to Rule 144(k) promulgated under the Securities Act or that are
the subject of a then effective Registration Statement.

(f)        Amendments and Waivers. The
provisions of this Agreement, including the provisions of this sentence, may
not be amended, modified or supplemented, and waivers or consents to departures
from the provisions hereof may not be given, unless the same shall be in
writing and signed by the Company and each Holder of the then outstanding
Registrable Securities.  Notwithstanding
the foregoing, a waiver or consent to depart from the provisions hereof with
respect to a matter that relates exclusively to the rights of Holders and that
does not directly or indirectly affect the rights of other Holders may be given
by Holders of all of the Registrable Securities to which such waiver or consent
relates; provided, however, that the provisions of this sentence
may not be amended, modified, or supplemented except in accordance with the
provisions of the immediately preceding sentence.

(g)       Notices. Any and all notices or
other communications or deliveries required or permitted to be provided
hereunder shall be delivered as set forth in the Purchase Agreement.

 12
 

 

 

(h)       Successors and Assigns. This
Agreement shall inure to the benefit of and be binding upon the successors and
permitted assigns of each of the parties and shall inure to the benefit of each
Holder. The Company may not assign its rights or obligations hereunder without
the prior written consent of all of the Holders of the then-outstanding
Registrable Securities. Each Holder may assign their respective rights
hereunder in the manner and to the Persons as permitted under the Purchase
Agreement.

(i)        No Inconsistent Agreements.
Neither the Company nor any of its subsidiaries has entered, as of the date
hereof, nor shall the Company or any of its subsidiaries, on or after the date
of this Agreement, enter into any agreement with respect to its securities,
that would have the effect of impairing the rights granted to the Holders in
this Agreement or otherwise conflicts with the provisions hereof.  Except as set forth on Schedule 6(i),
neither the Company nor any of its subsidiaries has previously entered into any
agreement granting any registration rights with respect to any of its
securities to any Person that have not been satisfied in full.

(j)        Execution and Counterparts. This
Agreement may be executed in any number of counterparts, each of which when so
executed shall be deemed to be an original and, all of which taken together
shall constitute one and the same Agreement. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid
binding obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
were the original thereof.

(k)       Governing Law.  All
questions concerning the construction, validity, enforcement and interpretation
of this Agreement shall be determined with the provisions of the Purchase
Agreement.

(l)        Cumulative Remedies. The remedies
provided herein are cumulative and not exclusive of any remedies provided by
law.

(m)      Severability. If any term,
provision, covenant or restriction of this Agreement is held by a court of
competent jurisdiction to be invalid, illegal, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions set forth herein
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated, and the parties hereto shall use their commercially reasonable
efforts to find and employ an alternative means to achieve the same or
substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may
be hereafter declared invalid, illegal, void or unenforceable.

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

(o)       Independent Nature of Holders’ Obligations
and Rights. The obligations of each Holder hereunder are several and
not joint with the obligations of any 

 13
 

 

 

other
Holder hereunder, and no Holder shall be responsible in any way for the
performance of the obligations of any other Holder hereunder. Nothing contained
herein or in any other agreement or document delivered at any closing, and no
action taken by any Holder pursuant hereto or thereto, shall be deemed to
constitute the Holders as a partnership, an association, a joint venture or any
other kind of entity, or create a presumption that the Holders are in any way
acting in concert with respect to such obligations or the transactions
contemplated by this Agreement. Each Holder shall be entitled to protect and
enforce its rights, including without limitation the rights arising out of this
Agreement, and it shall not be necessary for any other Holder to be joined as
an additional party in any proceeding for such purpose.

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

 14
 

 

 

               IN WITNESS WHEREOF, the parties
have executed this Registration Rights Agreement as of the date first written
above.

 

	
   

  	
  ADVANCED CELL TECHNOLOGY, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ William
  M. Caldwell, IV

  	
   

  
	
   

  	
  Name: William M.
  Caldwell, IV

  
	
   

  	
  Title: Chief
  Executive Officer

  

 

 

[SIGNATURE PAGE OF
HOLDERS FOLLOWS]

 15
 

 

 

[SIGNATURE PAGE OF
HOLDERS TO ACTC RRA]

Name of Holder: __________________________

Signature of Authorized Signatory of Holder:
__________________________

Name of Authorized Signatory: _________________________

Title of Authorized
Signatory: __________________________

[SIGNATURE PAGES
CONTINUE]

 16
 

 

 

ANNEX
A

Plan of Distribution

Each Selling Stockholder
(the “Selling Stockholders”) of the common stock (“Common Stock”)
of Advanced Cell Technology, Inc., a Delaware corporation (the “Company”)
and any of their pledgees, assignees and successors-in-interest may, from time
to time, sell any or all of their shares of Common Stock on the Trading Market
or any other stock exchange, market or trading facility on which the shares are
traded or in private transactions.  These
sales may be at fixed or negotiated prices. 
A Selling Stockholder may use any one or more of the following methods
when selling shares:

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

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

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

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

·                  privately negotiated transactions;

·                  settlement of short sales entered
into after the effective date of the registration statement of which this
prospectus is a part;

·                  broker-dealers may agree with
the Selling Stockholders to sell a specified number of such shares at a
stipulated price per share;

·                  a combination of any such methods of
sale;

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

·                  any other method permitted pursuant
to applicable law.

The Selling Stockholders
may also sell shares under Rule 144 under the Securities Act of 1933, as
amended (the “Securities Act”), if available, rather than under this
prospectus.

Broker-dealers
engaged by the Selling Stockholders may arrange for other brokers-dealers
to participate in sales.  Broker-dealers
may receive commissions or discounts from the Selling Stockholders (or, if any
broker-dealer acts as agent for the purchaser of shares, from the
purchaser) in amounts to be negotiated, but, except as set forth in a
supplement to this Prospectus, in the case of an agency transaction not in
excess of a customary brokerage 

 17
 

 

 

commission in
compliance with NASDR Rule 2440; and in the case of a principal transaction a
markup or markdown in compliance with NASDR IM-2440.

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

The Selling Stockholders
and any brokerdealers or agents that are involved in selling the shares may be
deemed to be “underwriters” within the meaning of the Securities Act in
connection with such sales.  In such
event, any commissions received by such brokerdealers or agents and any profit
on the resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act.  Each Selling Stockholder has informed the
Company that it does not have any written or oral agreement or understanding,
directly or indirectly, with any person to distribute the Common Stock. In no
event shall any broker-dealer receive fees, commissions and markups which, in
the aggregate, would exceed eight percent (8%).

The Company is required
to pay certain fees and expenses incurred by the Company incident to the
registration of the shares.  The Company
has agreed to indemnify the Selling Stockholders against certain losses,
claims, damages and liabilities, including liabilities under the Securities Act.

Because Selling
Stockholders may be deemed to be “underwriters” within the meaning of the
Securities Act, they will be subject to the prospectus delivery requirements of
the Securities Act.  In addition, any
securities covered by this prospectus which qualify for sale pursuant to Rule
144 under the Securities Act may be sold under Rule 144 rather than under this
prospectus.  Each Selling Stockholder has
advised us that they have not entered into any written or oral agreements,
understandings or arrangements with any underwriter or broker-dealer regarding
the sale of the resale shares.  There is
no underwriter or coordinating broker acting in connection with the proposed
sale of the resale shares by the Selling Stockholders.

We agreed to keep this
prospectus effective until the earlier of (i) the date on which the shares may
be resold by the Selling Stockholders without registration and without regard
to any volume limitations by reason of Rule 144(e) under the Securities Act or
any other rule of similar effect or (ii) all of the shares have been sold
pursuant to the prospectus or Rule 144 under the Securities Act or any other
rule of similar effect.  The resale
shares will be sold only through registered or licensed brokers or dealers if
required under applicable state securities laws. In addition, in certain
states, the resale shares may not be sold unless they have been registered or

 18
 

 

 

qualified for sale
in the applicable state or an exemption from the registration or qualification
requirement is available and is complied with.

Under applicable rules
and regulations under the Exchange Act, any person engaged in the distribution
of the resale shares may not simultaneously engage in market making activities
with respect to the Common Stock for the applicable restricted period, as
defined in Regulation M, prior to the commencement of the distribution.  In addition, the Selling Stockholders will be
subject to applicable provisions of the Exchange Act and the rules and
regulations thereunder, including Regulation M, which may limit the timing of
purchases and sales of shares of the Common Stock by the Selling Stockholders
or any other person.  We will make copies
of this prospectus available to the Selling Stockholders and have informed them
of the need to deliver a copy of this prospectus to each purchaser at or prior
to the time of the sale.

 19
 

 

 

Annex B

ADVANCED
CELL TECHNOLOGY, INC.

Selling
Securityholder Notice and Questionnaire

The undersigned
beneficial owner of common stock, par value $0.001 per share (the “Common
Stock”), of Advanced Cell Technology, Inc., a Delaware corporation (the “Company”),
(the “Registrable Securities”) understands that the Company has filed or
intends to file with the Securities and Exchange Commission (the “Commission”)
a registration statement on Form S-3 (the “Registration Statement”) for
the registration and resale under Rule 415 of the Securities Act of 1933, as
amended (the “Securities Act”), of the Registrable Securities, in
accordance with the terms of the Registration Rights Agreement, dated as of
August 30, 2006 (the “Registration Rights Agreement”), among the Company
and the Purchasers named therein.  A copy
of the Registration Rights Agreement is available from the Company upon request
at the address set forth below.  All
capitalized terms not otherwise defined herein shall have the meanings ascribed
thereto in the Registration Rights Agreement.

Certain legal
consequences arise from being named as a selling securityholder in the
Registration Statement and the related prospectus.  Accordingly, holders and beneficial owners of
Registrable Securities are advised to consult their own securities law counsel
regarding the consequences of being named or not being named as a selling
securityholder in the Registration Statement and the related prospectus.

NOTICE

The undersigned
beneficial owner (the “Selling Securityholder”) of Registrable
Securities hereby elects to include the Registrable Securities owned by it and
listed below in Item 3 (unless otherwise specified under such Item 3) in the
Registration Statement.

 20
 

 

 

The undersigned hereby
provides the following information to the Company and represents and warrants
that such information is accurate:

QUESTIONNAIRE

1.                                      Name.

(a)                                  Full Legal Name of Selling Securityholder

(b)                                 Full Legal Name of Registered Holder (if
not the same as (a) above) through which Registrable Securities Listed in Item
3 below are held:

(c)                                  Full Legal Name of Natural Control Person
(which means a natural person who directly or indirectly alone or with others
has power to vote or dispose of the securities covered by the questionnaire):

2. 
Address for Notices to Selling Securityholder:

 

 

 

Telephone:

Fax:

Contact Person:

 

3. 
Beneficial Ownership of Registrable Securities:

(a)                                  Type and Number of Registrable Securities
beneficially owned:

 

 21
 

 

 

4. 
Broker-Dealer Status:

(a)                                  Are you a broker-dealer?

Yes   o             No   o

(b)                                 If “yes” to Section 4(a), did you receive
your Registrable Securities as compensation for investment banking services to
the Company.

Yes   o             No   o

Note:                   If no, the Commission’s staff has indicated that you
should be identified as an underwriter in the Registration Statement.

(c)                                  Are you an affiliate of a broker-dealer?

Yes   o             No   o

(d)                                 If you are an affiliate of a
broker-dealer, do you certify that you bought the Registrable Securities in the
ordinary course of business, and at the time of the purchase of the Registrable
Securities to be resold, you had no agreements or understandings, directly or
indirectly, with any person to distribute the Registrable Securities?

Yes   o             No   o

Note:                   If no, the Commission’s staff has indicated that you
should be identified as an underwriter in the Registration Statement.

5. 
Beneficial Ownership of Other Securities of the Company Owned by the
Selling Securityholder.

Except
as set forth below in this Item 5, the undersigned is not the beneficial or
registered owner of any securities of the Company other than the Registrable
Securities listed above in Item 3.

(a)                                  Type and Amount of Other Securities
beneficially owned by the Selling Securityholder:

 

 22
 

 

 

6. 
Relationships with the Company:

Except
as set forth below, neither the undersigned nor any of its affiliates,
officers, directors or principal equity holders (owners of 5% of more of the
equity securities of the undersigned) has held any position or office or has
had any other material relationship with the Company (or its predecessors or
affiliates) during the past three years.

State any
exceptions here:

 

 

The undersigned
agrees to promptly notify the Company of any inaccuracies or changes in the
information provided herein that may occur subsequent to the date hereof at any
time while the Registration Statement remains effective.

By signing below,
the undersigned consents to the disclosure of the information contained herein
in its answers to Items 1 through 6 and the inclusion of such information in
the Registration Statement and the related prospectus and any amendments or
supplements thereto.  The undersigned
understands that such information will be relied upon by the Company in
connection with the preparation or amendment of the Registration Statement and
the related prospectus.

IN WITNESS WHEREOF
the undersigned, by authority duly given, has caused this Notice and
Questionnaire to be executed and delivered either in person or by its duly
authorized agent.

	
  Dated:

  	
   

  	
   

  	
  Beneficial Owner:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
						

 

PLEASE
FAX A COPY OF THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE, AND RETURN
THE ORIGINAL BY OVERNIGHT MAIL, TO:

 23

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