Document:

<PAGE>

EXHIBIT 10.28

                                SERVICE AGREEMENT
                                 BY AND BETWEEN
             ADM TRONICS UNLIMITED, INC. AND ITS SUBSIDIARIES (ADMT)
                      AND IVIVI TECHNOLOGIES, INC. (IVVI)
                                     DATED:
                                 AUGUST 1, 2009

This agreement between the above reference parties is to document the
information technology, regulatory and engineering services that ADMT will
provide to IVVI (this "Agreement"). Therefore:

     1.   ADMT will provide services to IVVI as specified in Exhibit A to this
          Agreement with the level of such services consistent with the average
          monthly level of services as had been previously rendered to IVVI by
          the four engineers employed by IVVI for the 12 months previous to this
          Agreement (the "Services").
     2.   IVVI shall pay to ADMT a monthly fee of $26,000 for the Services
          without proration (the "Monthly Service Fee"). The Monthly Service Fee
          shall be paid by IVVI to ADMT at the beginning of each month for the
          Services to be provided by ADMT to IVVI for such month. ADMT shall
          present an invoice to IVVI for the Monthly Service Fee.
     3.   ADMT agrees to employ a minimum of four qualified engineers, or
          contract with a third-party for provision of the Services at ADMT's
          discretion, subject to IVVI's consent which will not be unreasonably
          withheld. IVVI will notify ADMT in writing of any deficiency in the
          level of Services. ADMT shall have 30 days to cure such deficiency to
          the reasonable satisfaction of IVVI. If the deficiency is not cured by
          ADMT then at Ivivi's sole discretion, based on standards of
          reasonableness, IVVI shall have the right to either, i) terminate this
          Agreement pursuant to Section 5 of this Agreement, or ii) reduce the
          Monthly Service Fee to be paid by IVVI to ADMT thereafter.
     4.   Payment by IVVI to ADMT will be due immediately upon the monthly
          delivery to IVVI of the invoice described in Section 2 of this
          Agreement. Should IVVI fail to make timely payment, ADMT will provide
          written notification to IVVI of such failure and IVVI will have 2
          business days to make payment. ADMT will cease to provide any services
          to IVVI under this Agreement until all past due payments are made.
     5.   This Agreement may be terminated upon sixty days prior written notice
          by either party.

Both ADMT and IVVI confirm that this Agreement does no infer any other
relationship between ADMT and IVVI and does not obligate either party to be
responsible for any debts or other liabilities of the other. Both ADMT and IVVI
are separate entities and each is responsible for any liabilities created.

This Agreement shall be construed and enforced in accordance with the laws of
the State of New Jersey and shall not be modified or terminated except by a
written instrument executed by the parties hereto.

This Agreement i) does not amend in any way the Second Amended and Restated
Manufacturing Agreement entered into on June 15, 2006 and ii) does cancel in its
entirety the IT Services Agreement between IVVI and ADMT dated February 1, 2008.

In confirmation of the foregoing, the parties hereto have executed this
agreement as of the day and year first above written.

/s/ Andre' DiMino                            /s/ Ed Hammel
----------------------------                 ----------------------------------
Andre' DiMino, President                     Ed Hammel, SVP & CAO
ADM Tronics Unlimited, Inc.                  Ivivi Technologies, Inc.

<PAGE>

                                    EXHIBIT A
                     SERVICES TO BE PROVIDED BY ADMT TO IVVI
       ENGINEERING (INCLUDING QA AND QC), REGULATORY COMPLIANCE AND OTHER

Engineering Services
--------------------

Electronic, Mechanical, Software & QA-QC Disciplines
Project management and reporting
Engineering support for basic and applied R&D
Bread-board proof-of-concept prototyping
Documentation of CAD Drawing support for patent submissions and other needs
Conceptual to commercial engineering
Conceptual prototyping and Pre-production modeling
Clinical Trial Technical Support
Production design - Circuit design, schematics, mechanicals, documentation,
  testing
Interface for potential partners and due diligence on engineering, design and
  production
Liaison for outsourced design and/or production
Engineering support for FDA, CE, ETL, ISO filings
Certification control of test and lab equipment

QA-QC creation, implementation and maintenance

Regulatory Compliance System
----------------------------

FDA               On-site Inspections
                  GMP Documentation and Process
                  SOP Maintenance and Updating pursuant to revised standards
                  Document Change Notice System
                  DMR, DHF, Design Review, Design Verification
                  Complaint processing and MDR Reporting
                  CAPA System and Implementation
CE                Applicable provisions of above, plus:
                  On-site Inspections
                  Technical File Control and Revision
                  International Standards Maintenance
13485             Applicable provisions of above, plus:
                  On-site Audit and Inspection
                  Documentation control
                  Standards file (14907)
ETL               Applicable provisions of above, plus:
                  Quarterly on-site inspections
                  Standards control (60601, etc.)
CMDCAS            Applicable provisions of above, plus:
                  On-site and telephonic audits
                  Registered US site for service
                  Submission of Change Notices

Other
Fulfillment including warehousing, shipping and related paperwork in such volume
and amount equal to the average monthly amount over the previous 6 months
multiplied by two prior to this agreement.

<PAGE>

Computer hardware and software related issues, network administration, telephone
and cabling installations and maintenance supervision at IVVI's Montvale
location.

Not Included - a. out-of-pocket third party fees (i.e. ETL license and
inspection, BSI audit fee, INQC consulting, equipment service agreements, etc.);
b. material costs (components, circuit boards, etc.); c. filing fees (FDA
facility charge, CE fee, 13485 registration and inspection costs, etc.)afpw10q73109ex4_1.htm

EXHIBIT 4.1

 

SECURITIES PURCHASE AGREEMENT

THIS SECURITIES PURCHASE AGREEMENT (the “Agreement”), dated as of September 15, 2009, is entered into by and among AlumiFuel Power Corporation (formerly known as Inhibiton Therapeutics, Inc.) (the “Company”), a Nevada corporation, having its address at 7315 East Peakview Avenue, Centennial, CO  80111, and
each entity named on the signature page hereto as a buyer and the permitted assigns of such entity (each, a “Buyer”) (each agreement with a Buyer being deemed a separate and independent agreement between the Company and such Buyer, except that each Buyer acknowledges and consents to the rights granted to each other Buyer under this Agreement and the Transaction Documents (as defined below).

WITNESSETH:

WHEREAS, the Company and the Buyers are executing and delivering this Agreement in accordance with and in reliance upon the exemption from securities registration afforded, inter alia, by Rule 506 under Regulation D (“Regulation
D”) as promulgated by the United States Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933, as amended (the “Securities Act”), and/or Section 4(2) of the Securities Act; and

 

WHEREAS, the Buyers severally, and not jointly, wish to purchase, upon the terms and subject to the conditions of this Agreement, a minimum aggregate amount of $100,000 and a maximum aggregate amount of $700,000 of Convertible Debentures of the Company (the “Debentures”),
in the form of Exhibit A hereto, which will be convertible into shares of the Company’s Common Stock, par value $0.001 per share (the “Common Stock”), upon the terms and subject to the conditions of the Debentures, and subject to acceptance of this Agreement by the Company;

 

NOW THEREFORE, in consideration of the premises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

 

1. AGREEMENT TO PURCHASE; PURCHASE PRICE.

 

a. Purchase.

 

(i) The undersigned Buyers hereby severally agree to purchase the Debentures from the Company on the terms and conditions set forth below in this Agreement and the other Transaction Documents (as defined below).

 

(ii) Subject to the terms and conditions of this Agreement and the other Transaction Documents the Buyers will purchase the Debentures at one or more closings (each, a “Closing”) to be held on the respective Closing Dates
(as defined below).

 

(iii) The purchase price to be paid respectively by the Buyers shall equal 100% of the face amount of the Debentures being purchased on the Closing Date by each Buyer as set forth on the signature page to this Agreement.

 

 

 

 

 

 

b. Certain Definitions.

 

  As used herein, each of the following terms has the meaning set forth below, unless the context otherwise requires:

 

(i) “Affiliate” means, with respect to a specific Person referred to in the relevant provision, another Person who or which controls or is controlled by or is under common control with such specified Person.

 

(ii) “Certificates” means the relevant Debentures duly executed on behalf of the Company and issued in the name of the respective Buyer.

 

(iii) “Closing Date” means the respective dates on which the Closings referred to in this Agreement are held.

 

(iv) “Conversion Shares” means the shares of Common Stock issuable upon conversion of the Debentures.

 

(v) “Dollars” or “$” means United States Dollars.

 

(vi) “Effective Date” means the effective date of the Registration Statement covering the Registrable Securities (as those terms are defined in the Registration Rights Agreement defined below) for the Debentures issued hereunder.

 

(vii) “Escrow” means the Escrow Account maintained at FirstBank in connection with the purchase and sale of the Debentures hereunder.

 

(viii) “Existing Liens” shall have the meaning ascribed to such term in Section 4(i).

 

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

 

(x) “Final Closing Date” shall have the meaning ascribed to such term in Section 6(a).

 

(xi) “Person” means any living person or any entity, such as, but not necessarily limited to, a corporation, partnership or trust.

 

(xii) “Placement Agent” means Divine Capital Markets, LLC.

 

(xiii) “Placement Agent Shares” shall have the meaning ascribed to such term in Section 12(a).

 

(xiv) “Purchase Price” means the purchase price for the Debentures.

 

(xv) “Registration Rights Agreement” shall have the meaning ascribed to such term in Section 3(d).

 

(xvi) “Securities” means the Debentures and the Shares.

 

 

 

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(xvii) “Shares” means the Conversion Shares and the shares issued to the Placement Agent or any of its designees in connection with its services in connection with this offering of Debentures.

 

(xviii) “Subsidiary” shall have the meaning ascribed to such term in Section 3(b).

 

(xix) “Transaction Documents” means, collectively, this Agreement, the Debentures, the Registration Rights Agreement and the other agreements, documents and instruments contemplated hereby or thereby.

 

(xx) “Transfer Agent” shall have the meaning ascribed to such term in Section 4(a).

 

c. Form of Payment; Delivery of Certificates.

 

(i) Each of the Buyers shall pay the Purchase Price for the Debentures to be purchased by such Buyer by delivering immediately available good funds in United States Dollars to the Escrow prior to the respective Closing on the applicable
Closing Date, determined as provided in Section 6.

 

(ii) Promptly following payment to the Company from the Escrow of the Purchase Price to be paid for the purchase of the Debentures being purchased by such Buyer, the Company shall deliver to the Buyers the Certificates purchased at such
Closing.

 

d. Payment to the Escrow.  All payments to the Escrow for the purchase of the Debentures shall be made at or prior to the Closing by wire transfer of funds to the Escrow,
as follows:

 

 

 

 

Beneficiary Account Name:                                                      
AlumiFuel Power Corporation - Special Escrow Account

FBO: FirstBank Escrow Services, LLC for the benefit of Purchasers of Debentures of AlumiFuel Power Corporation

 

Beneficiary Account No.:                                           Acct: ___________________

 

ABA/Transit No.:                                           ________________________

Beneficiary Bank:                                           FirstBank

Attention:   Betty Marick, Escrow Officer

1707 Main Street, Suite 200

Longmont, CO    80501

Telephone:  303-772-6696

Facsimile:   303-684-6899

2. BUYERS REPRESENTATIONS, WARRANTIES, ETC.; ACCESS TO INFORMATION; INDEPENDENT INVESTIGATION.

 

Each Buyer represents and warrants to, and covenants and agrees with, the Company as follows:

 

 

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a. Without limiting any Buyer’s right to sell the Common Stock pursuant to the Registration Statement, each Buyer is purchasing the Debentures and will be acquiring the Conversion Shares for its own account for investment only and
not with a view towards the public sale or distribution thereof and not with a view to or for sale in connection with any distribution thereof.

 

b. Each Buyer is (i) an “accredited investor” as that term is defined in Rule 501 of the General Rules and Regulations under the Securities Act by reason of Rule 501(a)(3), (ii) experienced in making investments of the kind
described in this Agreement and the related documents, (iii) able, by reason of the business and financial experience of its officers (if an entity) and professional advisors (who are not affiliated with or compensated in any way by the Company or any of its affiliates or selling agents), to protect its own interests in connection with the transactions described in this Agreement, and the related documents, and (iv) able to afford the entire loss of its investment in the Securities.

 

c. All subsequent offers and sales of the Securities by each Buyer shall be made pursuant to registration of the Shares under the Securities Act or pursuant to an exemption from registration and compliance with applicable states’
securities laws.

 

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

 

e. Each Buyer and its advisors, if any, have been furnished with all materials relating to the business, finances and operations of the Company and materials relating to the offer and sale of the Securities which have been requested by
the Buyer.  Each Buyer and its advisors, if any, have been afforded the opportunity to ask questions of the Company and have received complete and satisfactory answers to any such inquiries.  Without limiting the generality of the foregoing, each Buyer has also had the opportunity to obtain and to review the Company’s (1) Annual Report on Form 10-K for the fiscal year ended January 31, 2009, filed May 18, 2009, (2) Quarterly Report on Form 10-Q for the fiscal quarter ended April 30,
2009, filed June 15, 2009 and (3) Current Reports on Form 8-K filed June 3, 2009 and July 15, 2009 (collectively, the “SEC Documents”).

 

f. Each Buyer understands that its investment in the Securities involves a high degree of risk, including the risk of loss of the Buyer’s entire investment.

 

g. Each Buyer understands that no United States federal or state agency or any other government or governmental agency has passed on or made any recommendation or endorsement of the Securities.

 

h. Each Buyer is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization.  This Agreement and the other Transaction Documents have been duly and validly authorized, executed
and delivered on behalf of the Buyer and create a valid and binding agreement of the Buyer enforceable in accordance with its terms, subject as to enforceability to general principles of equity and to bankruptcy, insolvency, moratorium and other similar laws affecting the enforcement of creditors’ rights generally.

 

 

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i. The state in which any offer to purchase shares hereunder was made to or accepted by such Buyer is the state shown as the Buyer’s address on the signature page hereof.

 

j. Each Buyer understands that the Placement Agent is acting as the Company’s agent in this Offering and is being compensated by the Company for such services (as detailed in Section 12(a)).  Moreover, each Buyer understands
and agrees that, to the extent such Buyer utilizes the brokerage services of the Placement Agent in respect of Securities (whether in the form of Debentures or Shares), the Placement Agent shall do so at the direction of such Buyer and the Placement Agent shall not have investment power or investment discretion over such Securities. Each Buyer further represents, acknowledges and agrees that its decision to invest in the securities of the Company was arrived at in the sole discretion of such Buyer, and that,
unless and until a separate familial, contractual or other relationship exists between or among specific Buyers providing the basis for such Buyers to be Affiliates of each other, the Buyers have exercised, and shall continue to exercise, their investment power and investment discretion independently of one another.

 

k. Each Buyer acknowledges and agrees that (i) upon funding the Purchase Price for the Debentures it agrees to purchase hereunder into the Escrow, Buyer shall not be entitled to withdraw from the Escrow such funds without the written
consent of the Company and the Placement Agent, even though a Closing with respect to such purchase has not yet occurred, (ii) funds representing the Purchase Price furnished into the Escrow may be held for an indefinite period of time, pending the purchase and sale of Debentures at a subsequent Closing and (iii) the Buyer’s funding of the Purchase Price into the Escrow shall not constitute its purchase of Debentures unless and until the funds are released from Escrow at a Closing, and accordingly, the
Buyer will not own Debentures, and will not be deemed to have invested in Debentures (and accordingly, the holding period for purposes of determining the availability of an exemption from registration under Rule 144 promulgated pursuant to the Securities Act in connection with any Securities will not commence) unless and until the purchase and sale of Debentures occurs at a Closing with respect to such funds.

 

3. COMPANY REPRESENTATIONS, ETC.

 

  The Company represents and warrants to the Buyers that:

 

a. Concerning the Debentures and the Shares.  There are no preemptive rights of any stockholder of the Company to acquire the Debentures or the Shares.

 

b. Organization; Subsidiaries; Reporting Company Status.  Attached hereto as Schedule 3(b) is an organizational
chart describing the Company’s majority-owned subsidiaries (the “Subsidiaries”) and the relationships among the Company and such Subsidiaries, including as to each Subsidiary its jurisdiction of organization and the percentage of ownership held by the Company, and the parent company of the Company, including the percentage of ownership of the Company held by it.  The Company and each Subsidiary is a corporation or other form of businesses entity duly organized, validly existing and
in good standing under the laws its respective jurisdiction of organization, and each of them has the requisite corporate or other power to own its properties and to carry on its business as now being conducted.  The Company and each Subsidiary is duly qualified as a foreign corporation or other entity to do business and is in good standing in each jurisdiction where the nature of the business conducted or property owned by it makes such qualification necessary, other than those jurisdictions in which
the failure to so qualify would not have a material adverse effect on the business, operations or condition (financial or otherwise) or results of operation of the Company taken as a whole, including, without limitation, a finding that the Company or any Subsidiary, or any of their 

 

 

 

5

 

respective customers, in using any product or service provided by the Company or any Subsidiary, has violated any provision of the Health Insurance Portability and Accountability Act or any regulation promulgated thereunder, irrespective of any finding of fault, magnitude of liability (or lack of financial liability) or purported lack of materiality
(it being understood that the mere finding of any such violation is in itself material and adverse (each, a “Material Adverse Effect”).  The Company has registered its Common Stock pursuant to Section 12 of the Exchange Act, and the Common Stock is listed and traded on the OTC Bulletin Board Market of the National Association of Securities Dealers, Inc. (trading symbol:  AFPW.otcbb).  The Company has received no notice, either oral or written, with respect to the continued
eligibility of the Common Stock for such listing, and the Company has maintained all requirements for the continuation of such listing.

 

c. Authorized Shares.  The following table sets fort all capital stock and derivative securities of the Company is that are authorized for issuance and that are issued
and outstanding:

 

	  	  	
Capitalization Table

AlumiFuel Power Corporation

as of September 15, 2009
	  
	  	  	
(stated on a common stock basis)
	  
	  	  	  
	
Common Stock
	  	  
	
Authorized
	  	
500,000,000
	
Par value

$0.001 per share

	
Issued and Outstanding
	
272,870,997   (1)
	  
	  	  	  	  
	
Preferred Stock
	  	  
	
Authorized
	  	
10,000,000
	
Par value

$0.001 per share

	
 
	
 
	  	  
	
Common Stock Equivalents
	  	  	  
	
Plan Options
	
20,425,000
	  
	  	
Granted
	
1,775,000            (2)
	  
	  	  	  
	
Non-Options/Other
	
0
	  
	  	  	  	  
	  	  	  
	
Warrants
	
39,713,763          (3)
	  
	  	  	  	  
	
Convertible Debt
	
733,333               (4)
	  
	  	  	  	  
	  	  	  	  
	
TOTALOUTSTANDING

(Fully Diluted)
	  	
336,405,093   (1,3,5)
	  

 

 

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(1)  Excludes Common Stock to be issued to the Placement Agent in connection with the sale of the Common Stock to the Investors.  See Section 12(a).

 

 

(2)  425,000 exercisable at $0.35 until 12/21/2012; 1,350,000 exercisable at $0.07 until 3/4/2014

 

 

(3)  Excludes 21,312,000 granted warrants that have not yet vested.  Weighted average exercise price of $0.15 per share.

 

(4) $50,000 in principal convertible at average closing price for 20 days preceding conversion.

 

(5) If all above options and warrants were exercised resulting in the 315,093,093 shares of common stock outstanding, the Company would have cash of approximately $6.2 million.

 

All issued and outstanding shares of Common Stock have been duly authorized and validly issued and are fully paid and nonassessable.  The Company has sufficient authorized and unissued shares of Common Stock as may be necessary to effect the issuance of the Shares, assuming the prior issuance and exercise, exchange or conversion,
as the case may be, of all  derivative securities authorized, as indicated in the above table.  The Shares have been duly authorized and, when issued upon conversion of, or as interest on, the Debentures, the Shares will be duly and validly issued, fully paid and non-assessable and will not subject the holder thereof to personal liability by reason of being such holder.  At all times, the Issuer shall keep available and reserved for issuance to the holders of the Debentures Common
Stock duly authorized for issuance against the Debentures.

 

d. Registration Rights Agreement.  This Agreement and the Registration Rights Agreement, dated as of the date hereof, between the Company and the Buyers, substantially
in the form of Exhibit B annexed hereto (the “Registration Rights Agreement”), and the issuance of the Debentures (including without limitation the incurrence of indebtedness thereunder) and the other transactions contemplated by the Transaction Documents, have been duly and validly authorized by the Company, and this Agreement has been duly executed and delivered by the Company.  Each of the Transaction Documents, when executed
and delivered by the Company, are and will be, valid, legal and binding agreements of the Company, enforceable in accordance with their respective terms, subject as to enforceability to general principles of equity and to bankruptcy, insolvency, moratorium, and other similar laws affecting the enforcement of creditors’ rights generally.

 

e. Non-contravention.  The execution and delivery of the Transaction Documents, the issuance of the Securities and the consummation by the Company of the other transactions
contemplated by this Agreement, the Registration Rights Agreement and the Debentures (including without limitation the incurrence of indebtedness thereunder) do not and will not conflict with or result in a breach by the Company of any of the terms or provisions of, or constitute a default under (i) the articles of incorporation or by-laws of the Company, each as currently in effect, (ii) any indenture, mortgage, deed of trust, or other material agreement or instrument to which the Company is a party or by which
it or any of its properties or assets are bound, including any listing agreement for the Common Stock, except as herein set forth or an event which results in the creation of any lien, charge or encumbrance upon any assets of the Company or the triggering of any preemptive or anti-dilution rights or rights of first refusal or first offer on the part of 

 

 

 

7

 

holders of the Company’s securities, (iii) to its knowledge, any existing applicable law, rule, or regulation or any applicable decree, judgment, or order of any court, United States federal or state regulatory body, administrative agency, or other governmental body having jurisdiction over the Company or any of its properties or assets, or (iv)
the Company’s listing agreement for its Common Stock (if applicable), except such conflict, breach or default which would not have a Material Adverse Effect.

 

f. Approvals.  No authorization, approval or consent of any court, governmental body, regulatory agency, self-regulatory organization, or stock exchange or market or the
stockholders of the Company is required to be obtained by the Company for the entering into and performing this Agreement and the other Transaction Documents (including without limitation the issuance and sale of the Securities to the Buyers as contemplated by this Agreement) except such authorizations, approvals and consents that have been obtained, or such authorizations, approvals and consents, the failure of which to obtain would not have a Material Adverse Effect.

 

g. SEC Filings.  None of the SEC Documents contained, at the time they were filed, any untrue statement of a material fact or omitted to state any material fact required
to be stated therein or necessary to make the statements made therein in light of the circumstances under which they were made, not misleading.  The Company timely filed all requisite forms, reports and exhibits thereto with the SEC as required as required.  The Company is not aware of any event occurring on or prior to a Closing Date or the Delivery Date (other than the transactions effected hereby) that would require the filing of, or with respect to which the Company intends to file, a
Form 8-K after such date.

 

h. Absence of Certain Changes.  Since May 18, 2009, there has been no material adverse change and no material adverse development in the business, properties, operations,
condition (financial or otherwise), or results of operations of the Company, except as disclosed in the SEC Documents. Since May 18, 2009, except as provided in the SEC Documents, the Company has not (i) incurred or become subject to any material liabilities (absolute or contingent) except liabilities incurred in the ordinary course of business consistent with past practices; (ii) discharged or satisfied any material lien or encumbrance or paid any material obligation or liability (absolute or contingent), other
than current liabilities paid in the ordinary course of business consistent with past practices; (iii) declared or made any payment or distribution of cash or other property to stockholders with respect to its capital stock, or purchased or redeemed, or made any agreements to purchase or redeem, any shares of its capital stock; (iv) sold, assigned or transferred any other tangible assets, or canceled any debts or claims, except in the ordinary course of business consistent with past practices; (v) suffered any
substantial losses or waived any rights of material value, whether or not in the ordinary course of business, or suffered the loss of any material amount of existing business; (vi) made any changes in employee compensation, except in the ordinary course of business consistent with past practices; or (vii) experienced any material problems with labor or management in connection with the terms and conditions of their employment.

 

 

8

 

i. Full Disclosure.  There is no fact known to the Company (other than general economic conditions known to the public generally or as disclosed in the SEC Documents) that
has not been disclosed in writing to the Buyers that (i) would reasonably be expected to have a Material Adverse Effect, (ii) would reasonably be expected to materially and adversely affect the ability of the Company to perform its obligations pursuant to the Transaction Documents, or (iii) would reasonably be expected to materially and adversely affect the value of the rights granted to the Buyers in the Transaction Documents.

 

j. Absence of Litigation.  Except as described in the SEC Documents, there is no action, suit, proceeding, inquiry or investigation before or by any court, public board
or body pending or, to the knowledge of the Company, threatened against or affecting the Company, wherein an unfavorable decision, ruling or finding would have a Material Adverse Effect or which would adversely affect the validity or enforceability of, or the authority or ability of the Company to perform its obligations under, any of the Transaction Documents.  The Company is not a party to or subject to the provisions of, any order, writ, injunction, judgment or decree of any court or government agency
or instrumentality which could reasonably be expected to have a Material Adverse Effect.

 

k. Absence of Events of Default.  No Event of Default (or its equivalent term), as defined in the respective agreement, indenture, mortgage, deed of trust or other instrument,
to which the Company is a party, and no event which, with the giving of notice or the passage of time or both, would become an Event of Default (or its equivalent term) (as so defined in such document), has occurred and is continuing, which would have a Material Adverse Effect.

 

l. No Undisclosed Liabilities or Events.  The Company has no liabilities or obligations other than those disclosed in the SEC Documents or those incurred in the ordinary
course of the Company’s business since May 18, 2009, and which individually or in the aggregate, do not or would not have a Material Adverse Effect.  No event or circumstances has occurred or exists with respect to the Company or its properties, business, condition (financial or otherwise), or results of operations, which, under applicable law, rule or regulation, requires public disclosure or announcement prior to the date hereof by the Company but which has not been so publicly announced or
disclosed.  There are no proposals currently under consideration or currently anticipated to be under consideration by the Board of Directors or the executive officers of the Company which proposal would (x) change the articles of incorporation, by-laws or any other charter document of the Company, each as currently in effect, with or without shareholder approval, which change would reduce or otherwise adversely affect the rights and powers of the shareholders of the Common Stock or (y) materially or
substantially change the business, assets or capital of the Company.

 

m. No Integrated Offering.  Neither the Company nor any of its affiliates nor any Person acting on its or their behalf has, directly or indirectly, at any time during the
six month period immediately prior to the date of this Agreement made any offer or sales of any security or solicited any offers to buy any security under circumstances that would eliminate the availability of the exemption from registration under Rule 506 of Regulation D in connection with the offer and sale of the Securities as contemplated hereby.

 

 

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n. Dilution.  The number of Shares issuable upon conversion of the Debentures may increase substantially in certain circumstances, including, but not necessarily limited
to, the circumstance wherein the market price of the Common Stock declines prior to the conversion of the Debentures.  The Company’s executive officers and directors have studied and fully understand the nature of the securities being sold hereby and recognize that they have a potential dilutive effect and further that the conversion of the Debentures and/or sale of the Conversion Shares may have an adverse effect on the market price of the Common Stock.  The board of directors of the
Company has concluded, in its good faith business judgment that such issuance is in the best interests of the Company.  The Company specifically acknowledges that its obligation to issue the Conversion Shares upon conversion of the Debentures is binding upon the Company and enforceable regardless of the dilution such issuance may have on the ownership interests of other shareholders of the Company.

 

o. Regulatory Permits.  The Company has all such permits, easements, consents, licenses, franchises and other governmental
and regulatory authorizations from all appropriate federal, state, local or other public authorities (“Permits”) as are necessary to own and lease its properties and conduct its businesses in all material respects in the manner described in the SEC Documents and as currently being conducted.  All such Permits are in full force and effect and the Company has fulfilled and performed all of its material obligations with respect to such Permits, and no event has occurred that allows, or after
notice or lapse of time would allow, revocation or termination thereof or will result in any other material impairment of the rights of the holder of any such Permit, subject in each case to such qualification as may be disclosed in the Prospectus.  Such Permits contain no restrictions that would materially impair the ability of the Company to conduct businesses in the manner consistent with its past practices.  The Company has not received notice or otherwise has knowledge of any proceeding
or action relating to the revocation or modification of any such Permit.

 

p. Hazardous Materials.  The Company is in compliance with all applicable Environmental Laws in all respects except where the failure to comply does not have and could
not reasonably be expected to have a Material Adverse Effect.  For purposes of the foregoing:

 

“Environmental Laws” means, collectively, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, the Superfund Amendments and Reauthorization Act of 1986, the Resource Conservation and Recovery Act, the Toxic Substances Control
Act, as amended, the Clean Air Act, as amended, the Clean Water Act, as amended, any other “Superfund” or “Superlien” law or any other applicable federal, state or local statute, law, ordinance, code, rule, regulation, order or decree regulating, relating to, or imposing liability or standards of conduct concerning, the environment or any Hazardous Material.

“Hazardous Material” means and includes any hazardous, toxic or dangerous waste, substance or material, the generation, handling, storage, disposal, treatment or emission of which is subject to any Environmental Law.

q. Independent Public Accountants. Cordovano & Honeck LLP., who has certified the consolidated financial statements of the Company, including the notes thereto, included in the
Company’s Annual Report on Forms 10-K for the year ended January 31, 2009, is an independent registered public accounting firm with respect to the Company, as required by the Securities Act, the Exchange Act and the rules and regulations promulgated thereunder.

 

 

10

 

r. Internal Accounting Controls.  The Company maintains a system of internal accounting controls sufficient to provide reasonable assurances that (1) transactions are executed
in accordance with management’s general or specific authorization; (2) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets; (3) access to assets is permitted only in accordance with management’s general or specific authorization; and (4) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.

 

s.      Brokers.  The Company engaged the Placement Agent in connection with the offering of the Debentures and the Shares to the Buyers hereunder.  No
Person (other than the Placement Agent and its principals, employees and agents) is entitled to receive any consideration from the Company or any Buyer arising from any finder’s agreement, brokerage agreement or other agreement to which the Company is a party.

4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.

 

a. Transfer Restrictions.  The parties acknowledge and agree that:

 

(1) the Debentures have not been and are not being registered under the provisions of the Securities Act and, except as provided in the Registration Rights Agreement, the Shares have not been and are not being registered under the Securities Act, and may not be transferred unless (A) subsequently registered thereunder or (B) the Securities
to be sold or transferred may be sold or transferred pursuant to an exemption from such registration under applicable law;

 

(2) any sale of the Securities made in reliance on Rule 144 promulgated under the Securities Act may be made only in accordance with the terms of said Rule and further, if said Rule is not applicable, any resale of such Securities under circumstances in which the seller, or the Person through whom the sale is made, may be deemed to be
an underwriter, as that term is used in the Securities Act, may require compliance with some other exemption under the Securities Act or the rules and regulations of the SEC thereunder;

 

(3) at the request of any Buyer, the Company shall, from time to time, within two (2) business days of such request, at the sole cost and expense of the Company, either (i) deliver to its transfer agent and registrar for the Common Stock (the “Transfer Agent”) a written letter (“Company Instructions”) instructing
and authorizing the Transfer Agent to process transfers of the Shares at such time as the Buyer has held the Securities for the minimum holding period permitted under Rule 144 (currently, six (6) months), subject to the Buyer’s providing to the Transfer Agent certain customary representations contemporaneously with any requested transfer, or (ii) an opinion of the Company’s counsel (a “Company Trading Opinion”) in favor of the Buyer and the Transfer Agent, reasonably satisfactory in form,
scope and substance to the Buyer and the Transfer Agent, to the effect that registration in connection with a resale by such Buyer of any of the Securities in accordance with clause (1)(B) of this Section 4(a) is not required under the Securities Act, the Company shall (except as otherwise provided in clause (2) of this Section 4(a)) permit the transfer of the Securities and, in the case of the Shares, instruct the Company’s Transfer Agent to issue one or more certificates for Common Stock without any restrictive
legend in such name and in such denominations as specified by the Buyer; and

 

 

11

 

(4) neither the Company nor any other Person is under any obligation to register the Securities (other than pursuant to the Registration Rights Agreement) under the Securities Act or to comply with the terms and conditions of any exemption thereunder.

 

b. Restrictive Legend.  The Buyers acknowledge and agree that the Debentures, and, unless Company Instructions or a Trading Opinion has been issued in respect of the Shares
or the Shares have been registered under the Securities Act as contemplated by the Registration Rights Agreement and sold in accordance with an effective Registration Statement, certificates and other instruments representing any of the Securities shall bear a restrictive legend in substantially the following form (and a stop-transfer order may be placed against transfer of any such Securities):

 

THESE SECURITIES (THE “SECURITIES”) HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES OR AN OPINION OF COUNSEL OR OTHER
EVIDENCE ACCEPTABLE TO THE CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED.

 

c. Registration Rights Agreement.  The parties hereto agree to enter into the Registration Rights Agreement on or before the Closing Date.

 

d. Securities Filings.  The Company undertakes and agrees to make all necessary filings in connection with the sale of the Securities to the Buyers required under any United
States laws and regulations applicable to the Company (including without limitation a Form D filing under Regulation D promulgated pursuant to the Securities Act and any filings required under state “blue sky” laws), or by any domestic securities exchange or trading market, and to provide copies thereof to any Buyer upon their request.

 

e. Reporting Status; Public Trading Market.  So long as any of the Buyers beneficially own any Securities and any Shares are outstanding, (i) the Company shall timely file,
prior to or on the date when due, all reports required to be filed with the SEC pursuant to Section 13 or 15(d) of the Exchange Act, and the Company shall not terminate its status as an issuer required to file reports under the Exchange Act even if the Exchange Act or the rules and regulations thereunder would permit such termination, (ii) the Company shall not be operated as, or report, to the SEC or any other Person, that the Company is a “shell company” or indicate to the contrary to the SEC or
any other Person, (iii) the Company shall take all other action under its control necessary to ensure the availability of Rule 144 under the Securities Act for the sale of Shares by the Buyers.  Except as otherwise set forth in Transaction Documents, the Company shall take all action under its control necessary to obtain and to continue the listing and trading of its Common Stock (including, without limitation, all Registrable Securities) on the OTC Bulletin Board Market (“OTCBB”) of the
National Association of Securities Dealers, Inc. and will comply in all material respects with the Company’s reporting, filing and other obligations under the by-laws or rules of the National Association of Securities Dealers, Inc. (“NASD”).  If, so long as any of the Buyers beneficially own any of the Securities,  the Company receives any written notice from the OTCBB, NASD or the SEC with respect to either any alleged deficiency in the Company’s compliance with applicable
rules and regulations (including without limitation any comments from the SEC on any of the 

 

 

 

12

 

Company’s documents filed (or the failure to have made any such filing)  under the Securities Act or the Exchange Act) (each, a “Regulatory Notice”), then the Company shall promptly, and in any event within two business days, provide copies of the Regulatory Notice to the Buyers, and shall promptly, and in any event , respond
in writing to the OTCBB, NASD and/or SEC (as the case may be)(the “Regulatory Response”),  within the time period requested in the Regulatory Notice, setting forth the Company’s explanation and/or response to the issues raised in the Regulatory Notice, with a view towards maintaining and/or regaining full compliance with the applicable rules and regulations of the OTCBB, NASD and/or SEC and maintaining or regaining good standing of the Company with the OTCBB, NASD and/or SEC, as the
case may be, the intent being to ensure that the Company maintain its reporting company status with the SEC and that its Common Stock be and remain available for trading on the OTCBB (excluding the “pink sheets”).

 

f. Use of Proceeds.   The Company will use the proceeds from the sale of the Debentures (excluding amounts paid by the Company for legal fees in connection with the
sale of the Debentures) for internal working capital purposes.  Except in connection with the possible redemption of Placement Agent Shares as described in Section 12(a), absent the prior written approval of a majority of the principal amount of the Debentures then outstanding, the Company shall not use any portion of the proceeds of the sale of the Debentures to (i) repay any indebtedness or other obligation of the Company incurred prior to the date of this Agreement outside the normal course of business,
(ii) pay any dividends or redemption amount on any of the Company’s equity or equity equivalents or (iii) pay deferred compensation or any compensation to any of the directors or officers of the Company in excess of the rate or amount paid or accrued during the fiscal year ended January 31, 2009, other than modest increases consistent with prior practice that are approved by the Company’s Board of Directors.

 

g. Available Shares; Reverse Split.  The Company shall have at all times authorized and reserved for issuance, free from preemptive rights, shares of Common Stock equal
to three hundred percent (300%) of the number of shares of Common Stock issuable upon conversion of the then-outstanding Debentures (including accrued interest thereon) as may be required to satisfy the conversion rights of the Buyers pursuant to the terms and conditions of the Debentures.  If the closing bid price of the Common Stock is below $0.05 on three (3) consecutive trading days, then the Company shall seek to implement a reverse stock split in a ratio of at least one-for-five (i.e., one
new share of Common Stock shall be issued to replace five (5) or more existing shares of Common Stock, with the specific ratio to be determined by the Company’s Board of Directors).  The Company shall monitor the foregoing on an ongoing basis.  If at any time either the Company does not have available an amount of authorized and unissued Shares required to be so reserved or the closing bid price of the Common Stock is below $0.05 on three (3) consecutive trading days, then the Company
shall, without notice or demand by the Buyers, call within thirty (30) days of such occurrence and hold within sixty (60) days of such occurrence a special meeting of shareholders, for the sole purpose of increasing the number of shares authorized or implementing a reverse stock split of the Common Stock, as the case may be.  At the meeting, management of the Company shall recommend to shareholders that they vote in favor of increasing the number of shares of Common Stock authorized or of implementing
the reverse split, as the case may be.  Members of the Company’s Management shall also vote all of their own shares in favor of increasing the number of shares of Common Stock authorized or implementing the reverse split, as the case may be, at the meeting.  If the increase in authorized shares or the reverse split is approved by the stockholders at the meeting, the Company shall implement the increase in authorized 

 

 

 

13

 

shares or reverse split within one (1) business day following approval at such meeting.  Alternatively, to the extent permitted by applicable law, in lieu of calling and holding a meeting of stockholders as described above, within thirty (30) days of the date when the Company does not have available an amount of authorized and non-issued Shares
required to be reserved or if the closing price of the Common Stock is below $0.05 bid for three (3) consecutive trading days, each as described above, the Company may procure the written consent of stockholders to approve the increase the number of shares of Common Stock authorized or the implementation of a reverse split of Common Stock, as the case may be, and provide the stockholders with notice thereof as may be required under applicable law (including without limitation Section 14(c) of the Exchange Act
and Regulation 14C thereunder).  Upon obtaining stockholder approval as aforesaid, the Company shall implement the appropriate increase in its authorized shares of Common Stock or reverse split of Common Stock, as applicable, within one (1) business day or as soon thereafter as permitted by applicable law.

 

h. Reimbursement.  If (i) any Buyer, other than by reason of its gross negligence, willful misconduct or breach of law, becomes a party defendant in any capacity in any
action or proceeding brought by any stockholder of the Company, in connection with or as a result of the consummation of the transactions contemplated by the Transaction Documents, or if such Buyer is impleaded in any such action, proceeding or investigation by any Person, or (ii) any Buyer, other than by reason of its gross negligence, willful misconduct or breach of law, becomes a party defendant in any capacity in any action or proceeding brought by the SEC against or involving the Company or in connection
with or as a result of the consummation of the transactions contemplated by the Transaction Documents, or if such Buyer is impleaded in any such action, proceeding or investigation by any Person, then in any such case, the Company will reimburse such Buyer for its reasonable legal and other expenses (including the cost of any investigation and preparation) incurred in connection therewith. 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 Buyers 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 Buyers 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 Buyers and any such Affiliate and any such Person.  Except as otherwise
set

 

 

14

 

i.  forth in the Transaction Documents, the Company also agrees that neither any Buyer nor any such Affiliate, 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 in connection with or as a result of the consummation of the Transaction Documents except to the extent that any losses, claims, damages, liabilities or expenses incurred by the Company result from the gross negligence or willful misconduct of such Buyer or  from a breach of the representations, covenants and conditions contained herein or from a breach of law.

 

j. No New Indebtedness or Liens.  So long as any of the Debentures remain outstanding, the Company shall not, absent the prior written consent of the holders of all Debentures
then outstanding, enter into, create, incur, assume or suffer to exist any indebtedness or liens of any kind, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom that is senior to, or pari passu with, in any respect, the Company’s obligations under the Debentures, other than purchase money security interests granted to suppliers to the Company and any of the
foregoing that are made in the ordinary course of business of the Company and its Subsidiaries.  Schedule 4(j) hereto sets forth all liens and encumbrances upon the assets of the Company as of the date hereof (the “Existing Liens”).  Notwithstanding the restrictions set forth above in this Section 4(j), the Existing Liens shall be permitted to remain in place until the Company’s underlying obligations have been
satisfied, provided, however, that the incurrence of additional indebtedness or other obligations of the Company in connection with the Existing Liens shall not be permitted.  For example, if a creditor has an Existing Lien on certain assets of the Company to secure an obligation consisting of $100,000 indebtedness of the Company, then the Company shall not be permitted to
increase the amount of indebtedness above the amount extant on the date of this Agreement (inclusive of interest which may accrue under the terms of such indebtedness) or to transfer or continue the Existing Lien in alternate indebtedness, notwithstanding any agreement between the Company and such creditor to do so.

 

k. No Payments to Affiliates or Related Parties.  So long as any of the Debentures remain outstanding, the Company shall not, absent the prior written consent of the holders
of all Debentures then outstanding, make any payments in excess of twenty percent (20%) of the gross proceeds from any Closing, to any of the Company’s or the Subsidiaries’ respective affiliates or related parties, including without limitation payments or prepayments of principal or interest accrued on any indebtedness or obligation in favor of affiliates or related parties as described in Note 2 to the Company’s quarterly financial statements included in its Quarterly Report on Form 10-Q for
the fiscal quarter ended April 30, 2009.

 

l. Notice of Material Adverse Effect.  The Company shall notify the Buyers (and any subsequent holder of the Debentures), as soon as practicable and in no event later than
five (5) business days of the Company’s knowledge of any Material Adverse Effect on the Company.  For purposes of the foregoing, “knowledge” means the earlier of the Company’s actual knowledge or the Company’s constructive knowledge upon due inquiry.

 

5. TRANSFER AGENT INSTRUCTIONS.

 

a. The Company shall at all times while any Debentures are outstanding engage a Transfer Agent.  As of the date of this Agreement, the Transfer Agent is First American Stock Transfer. Within five (5) business days following
the purchase by the Buyers of the Debentures in accordance with Section 1(c) hereof, the Company will irrevocably instruct its Transfer Agent in writing (with copies to be provided to the Placement Agent) to (i) reserve that number of shares of Common Stock as is equal to three hundred percent (300%) of the number of shares of Common Stock issuable upon conversion of the then-outstanding Debentures (including accrued interest thereon) as may be required to satisfy the conversion rights of the Buyers pursuant
to the terms and conditions of the Debentures, and (ii) issue Common Stock from time to time upon conversion of the Debentures in such amounts as specified from time to time by the Company to the Transfer Agent, bearing the restrictive legend specified in Section 4(b) of this Agreement 

 

 

 

15

 

prior to registration of the Shares under the Securities Act, registered in the name of the respective Buyer or its permitted assigns and in such denominations to be specified by such Buyer in its Conversion Notice (as defined in the Debenture) given in connection with each conversion of the Debentures, provided,
that if at the time of delivery of a Conversion Notice, (i) the Buyer requests, or there has previously been delivered to the Transfer Agent, either (a) Company Instructions or (b) a Company Trading Opinion, or (ii) any Buyer provides the Company with an opinion of counsel reasonably satisfactory to the Company (a “Buyer Trading Opinion” and, together with a Company Trading Opinion, a “Trading Opinion”) that registration of a resale by such Buyer of any of the Securities in accordance
with clause (1)(B) of Section 4(a) of this Agreement is not required under the Securities Act, the Company shall permit the transfer of the Securities and, in the case of the Converted Shares, instruct the Company’s Transfer Agent to issue one or more certificates for Common Stock without legend in such name and in such denominations as specified by the Buyer.

 

b. Periodically, if and to the extent necessary to increase the number of reserved shares to remain at 300% to account for any decrease in the market price of the Common Stock, the Company shall notify its registrar and Transfer Agent
in writing of the reservation of such additional shares.  The Company shall provide the Placement Agent with a copy of such written instructions to the Company’s Transfer Agent simultaneously with the issuance of such instructions to the Transfer Agent.  The Company agrees that if the Buyer is not in breach of its representations and warranties contained in this Agreement, no instruction other than such instructions referred to in this Section 5 and stop transfer instructions to give
effect to Section 4(a) hereof prior to registration and sale of the Converted Shares under the Securities Act, will be given by the Company to the Transfer Agent and that the Converted Shares shall otherwise be freely transferable on the books and records of the Company as and to the extent provided in this Agreement, the Registration Rights Agreement, Company Instructions or any Trading Opinion and applicable law.  Nothing in this Section 5(a) shall affect in any way the Buyers’ obligations and
agreement to comply with all applicable securities laws upon resale of the Securities.

 

c. (i)      The Company will permit the Buyers to exercise their rights to convert the Debentures by telecopying or delivering an executed and completed Notice of Conversion to the Company.  The
Company will within two (2) business days respond with its endorsement so as to confirm the outstanding principal amount of any Debenture submitted for conversion or shall reconcile any difference with the Buyer promptly after receiving such Notice of Conversion.

 

(ii) The term “Conversion Date” means, with respect to any conversion elected by the holder of the Debentures, the date specified in the Notice of Conversion, provided the copy of the Notice of Conversion is given either via
mail or facsimile to or otherwise delivered to the Company in accordance with the provisions hereof so that it is received by the Company on or before such specified date.

 

 

16

 

(iii) The Company will transmit the certificates representing the Converted Shares issuable upon conversion of any Debentures (together, unless otherwise instructed by the Buyer, with Debentures not being so converted) to the Buyer at
the address specified in the Notice of Conversion (which may be the Buyer’s address for notices as contemplated by Section 12 hereof or a different address) via express courier, by electronic transfer or otherwise, within five (5) business days if the address for delivery is in the United States and within seven (7) business days if the address for delivery is outside the United States (such fifth business day or seventh business day, as the case may be, the “Delivery Date”) after (A) the business
day on which the Company has received the Notice of Conversion (by facsimile or other delivery) or (B) the date on which payment of interest and principal on the Debentures, which the Company has elected to pay by the issuance of Common Stock, as contemplated by the Debentures, was due, as the case may be.

 

d. From and after the date on which the Shares have been registered under the Securities Act as contemplated by the Registration Rights Agreement, the failure to issue unrestricted, freely tradable Conversion Shares to the Buyers upon
Conversion shall be considered an Event of Default, which if not cured after ten (10) days, shall entitle the Buyer(s) whose Debentures are being converted to demand that the Debentures held by such Buyer(s) be immediately redeemed in full by a cash payment equal to 130% of the aggregate of the unpaid principal amount of and accrued
interest on such Debentures (whether or not the terms of such Debentures expressly permit the redemption thereof).  The Company acknowledges that its failure to honor a Notice of Conversion shall cause definable financial hardship on the Buyer(s).

 

e. The Company shall inform the Transfer Agent of the reservation of shares contemplated by Section 4(g) and this Section 5, and shall keep current in its payment obligations to the Transfer Agent such that the Transfer Agent will continue
to process share transfers and the initial issuance of shares of Common Stock upon the conversion of Debentures.  The Company hereby authorizes the Transfer Agent to correspond and otherwise communicate with the Buyers or their representatives in connection with the foregoing and other matters related to the Common Stock.  Further, the Company hereby authorizes the Buyers or their representatives to provide instructions to the Transfer Agent that are consistent with the foregoing and instructs
the Transfer Agent to honor any such instructions.  Should the Company fail for any reason to keep current in its payment obligations to the Transfer Agent, the Buyers may pay such amounts as are necessary to return the Company to good standing with the Transfer Agent, and all amounts so paid shall be promptly reimbursed by the Company.  If not so reimbursed within thirty (30) days, such amounts shall, at the option of the Buyer(s) who paid amounts to the Transfer Agent but without prior notice
to or consent of the Company, be added to the principal amount due under the Debenture(s) held by such Buyer(s), whereupon interest will begin to accrue on such amounts at the rate specified in the Debentures.

 

f. Each Buyer shall be entitled to exercise its conversion privilege with respect to the Debentures notwithstanding the commencement of any case under 11 U.S.C. §101 et seq. (the
“Bankruptcy Code”).  In the event the Company is a debtor under the Bankruptcy Code, the Company hereby waives, to the fullest extent permitted, any rights to relief it may have under 11 U.S.C. §362 in respect of such Buyer’s conversion privilege.  The Company hereby waives, to the fullest extent permitted, any rights to relief it may have under 11 U.S.C. §362 in respect of the conversion of the Debentures.  The Company agrees, without cost or expense
to such Buyer, to take or to consent to any and all action necessary to effectuate relief under 11 U.S.C. §362.

 

6. CLOSING DATES.

 

17

 

 

a. The purchases and sales of Debentures will occur at one or more Closings under this Agreement, the first of which will occur after Buyers have deposited not less than $100,000 of the Purchase Price in the Escrow for the transactions
contemplated under this Agreement, on a Closing Date determined by the Placement Agent and the Company.  Subsequent Closing(s) under this Agreement will occur after Buyers who will purchase the balance or a portion thereof of the Debentures to be purchased and sold under this Agreement have deposited the  amount of their Purchase Prices in the Escrow, with the Closing Date(s) from time to time.  The final Closing shall occur
after the Buyers who will purchase the balance of the Debentures to be purchased and sold under this Agreement (which may be in any amount up to $700,000, in the aggregate) have deposited the full amount of their Purchase Prices in the Escrow, with the Closing Date of such final Closing (the “Final Closing Date”) to occur on the date determined by the Placement Agent or the Company; provided, that should no additional amounts be deposited into the Escrow, the Final Closing Date shall be a date determined
by the Placement Agent, acting in its sole discretion.  If any of the conditions precedent to Closing set forth in Sections 7 or 8 are not satisfied and are not waived within thirty (30) days by the party which benefits from such conditions (i.e., the Company, in the case of those conditions set forth in Section 7 and the Buyer(s), in the case of those conditions set forth in Section 8), then the Offering shall terminate, and the Company shall
provide written notice of termination to the escrow agent administering the Escrow so stating and instructing the escrow agent to return to the Buyer(s) the amounts held in the Escrow furnished by the Buyer(s), provided, that if the Company does not promptly so furnish such notice and instructions, then the Placement Agent may, in the Company’s stead, provide such notice and instructions, which shall for all purposes be construed as if the same was provided by the Company.

 

b. In the case of each Closing, the Closing Date shall occur after each of the conditions contemplated by Sections 7 and 8 hereof shall have either been satisfied or been waived by the party in whose favor such conditions run.  It
is anticipated that the initial Closing will occur as soon as reasonably practical after the minimum investment in the Offering has been deposited into the Escrow.  Following the initial Closing, assuming additional funds representing the Purchase Price of Debentures sought to be acquired are furnished by Buyers into the Escrow, absent a contrary agreement by the Placement Agent and the Company, subsequent Closing(s) will occur on or about the second-to-last last business day of each month while the
Offering is being made, prior to the final Closing.

 

c. In the case of each Closing, the Closing of the purchase and issuance of Debentures shall occur on the respective Closing Date at the offices of the Placement Agent’s counsel, Sullivan & Worcester LLP, 1290 Avenue of the
Americas, 32nd Floor, New York, NY  10104, and shall take place no later than 3:00 P.M., New York time, on such day or such other time as is mutually agreed upon by the Company and the Buyers.

 

 

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

 

The Company’s obligation to sell the Debentures to the Buyer pursuant to this Agreement on each Closing Date is conditioned upon:

 

a. Delivery from the Escrow to the Company of good funds as payment in full of an amount equal to the Purchase Price for the Debentures in accordance with this Agreement;

 

b. The accuracy on the Closing Date of the representations and warranties of the Buyers contained in this Agreement, each as if made on such date, and the performance by the Buyers on or before such date of all covenants and agreements
of the Buyers required to be performed on or before such date; and

 

c. There shall not be in effect any law, rule or regulation prohibiting or restricting the transactions contemplated hereby, or requiring any consent or approval which shall not have been obtained.

 

8. CONDITIONS TO THE BUYERS’ OBLIGATION TO PURCHASE.

 

The Buyer’s obligation of those Buyers who are purchasing Debentures at a particular closing to purchase the Debentures on the applicable Closing Date is conditioned upon:

 

a. The execution and delivery of this Agreement and the Registration Rights Agreement by the Company;

 

b. Delivery by the Company to the Buyers of the Debentures to be purchased in accordance with this Agreement;

 

c. Delivery by the Company to the Buyers of an opinion of counsel to the Company, substantially in the form attached hereto as Exhibit D and dated as of the Closing Date;

 

d. The accuracy in all material respects on the Closing Date of the representations and warranties of the Company contained in this Agreement, each as if made on such date, and the performance by the Company on or before such date of
all covenants and agreements of the Company required to be performed on or before such date;

 

e. There shall not be in effect any law, rule or regulation prohibiting or restricting the transactions contemplated hereby, or requiring any consent or approval which shall not have been obtained; and

 

f. From and after the date hereof to and including the Closing Date, (i) the trading of the Common Stock shall not have been suspended by the SEC or the NASD and trading in securities generally on OTCBB shall not have been suspended or
limited, nor shall minimum prices been established for securities traded on the OTCBB, (ii) there shall not have occurred any outbreak or escalation of hostilities involving the United States or any material adverse change in any financial market that in either case in the reasonable judgment of the Buyers makes it impracticable or inadvisable to purchase the Debentures.  Additionally, in the event of each Closing following the initial Closing, it shall be a condition precedent to such Closing that
no material adverse change to the Company’s financial condition or operations shall have occurred in the interim period following the immediately preceding Closing.

 

 

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9. GOVERNING LAW; MISCELLANEOUS.

 

a. This Agreement shall be governed by and interpreted in accordance with the laws of the State of New York for contracts to be wholly performed in such state and without giving effect to the principles thereof regarding the conflict
of laws.  Each of the parties consents to the jurisdiction of the federal courts whose districts encompass any part of the City of New York or the state courts of the State of New York sitting in the City and County of New York in connection with any dispute arising under this Agreement and hereby waives, to the maximum extent permitted by law, any objection, including any objection based on forum non conveniens, to the bringing of any such proceeding
in such jurisdictions.  To the extent determined by such court, the Company shall reimburse the Buyers for any reasonable legal fees and disbursements incurred by the Buyers in enforcement of or protection of any of its rights under any of the Transaction Documents.

 

b. Failure of any party to exercise any right or remedy under this Agreement or otherwise, or delay by a party in exercising such right or remedy, shall not operate as a waiver thereof.

 

c. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties hereto.

 

d. All pronouns and any variations thereof refer to the masculine, feminine or neuter, singular or plural, as the context may require.

 

e. A facsimile transmission of this signed Agreement shall be legal and binding on all parties hereto.

 

f. This Agreement may be signed in one or more counterparts, each of which shall be deemed an original.

 

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

 

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

 

i. This Agreement may be amended only by the written consent of a majority in interest of the holders of the Debentures and an instrument in writing signed by the Company.

 

j. This Agreement supersedes all prior agreements and understandings among the parties hereto with respect to the subject matter hereof.

 

 

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10. NOTICES.

 

  Any notice required or permitted hereunder shall be given in writing (unless otherwise specified herein) and shall be deemed effectively given on the earliest of:

 

a. the date delivered, if delivered by personal delivery as against written receipt therefor or by confirmed facsimile transmission,

 

b. the seventh business day after deposit, postage prepaid, in the United States Postal Service by registered or certified mail, or

 

c. the third business day after mailing by next-day express courier, with delivery costs and fees prepaid, in each case, addressed to each of the other parties thereunto entitled at the following addresses (or at such other addresses
as such party may designate by ten (10) days’ advance written notice similarly given to each of the other parties hereto):

 

	
COMPANY:
	
AlumiFuel Power Corporation

	  	
7315 East Peakview Avenue

	  	
Centennial, CO  80111

	  	
Fax No.  561-514-9046

Attention:  Henry Fong, Chief Executive Officer

	  	  
	
BUYERS:
	
At the address set forth on the signature pages of this Agreement.

	  	
With copies to:

	  	
Divine Capital Markets, LLC

	  	
39 Broadway, 36th Floor

New York, NY  10006

	  	
Fax No. 212-509-5867

Attention:  Jason Goldstein, Senior Vice President

11. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The Company’s and the Buyers’ representations and warranties herein shall survive for a period of fifteen (15) months
after the execution and delivery of this Agreement and shall inure to the benefit of the Buyers and the Company and their respective successors and assigns.

 

12. FEES; EXPENSES.

 

a. At each Closing, the Placement Agent shall receive cash compensation (inclusive of expenses) equal to thirteen percent (13%) of the gross proceeds of the Debentures (payable at each Closing), and in addition, at the initial Closing
under this Offering, the Company shall issue an aggregate of 900,000 shares of Common Stock (the “Placement Agent Shares”), in the form of restricted securities and appropriately legended, to be issued to the Placement Agent or to such Persons as the Placement Agent shall designate to the Company in writing.  The Company shall also reimburse the Placement Agent for expenses it incurs in connection with its services to the Company in its capacity as Placement Agent in accordance with the
terms of the agreement, dated August 25, 2009 between the Company and the Placement Agent.  The cash compensation and expenses shall be deducted from the proceeds of the sale of the Debentures at each Closing.

 

 

21

 

b. The Company will pay the legal fees of the Placement Agent in the amount of $15,000 and will pay the 100% of the disbursements actually incurred by counsel to the Placement Agent.  The Company will pay $15,000 to such counsel
at the initial Closing under this Offering, and in that connection the Company and the Placement Agent shall authorize the deduction of such amount from the Escrow at the initial Closing and disbursement of the same to the Placement Agent’s legal counsel at the initial Closing.  The Company will pay disbursements of the Placement Agent’s legal counsel within ten (10) days of invoice therefor.  The $15,000 in respect of fees of the Placement Agent’s counsel shall include only
those fees paid for services rendered up to the Final Closing Date, and any other reasonable legal fees incurred by the Placement Agent’s counsel in connection with the Transaction Documents (including enforcement of the Company’s obligations or the exercise of the Placement Agent’s or the Buyers’ remedies thereunder) or, if requested by the Placement Agent, review of the Registration Statement (including review and comment on drafts thereof and advice concerning sales of Registrable Securities
(as defined in the Registration Rights Agreement) shall be payable by the Company to such counsel within ten (10) days of the invoice therefor.

 

[Signature Page Follows]

 

	
 
	  	  

  

22

  

IN WITNESS WHEREOF, this Agreement has been duly executed by the Buyers and the Company as of the date set forth below.

 

Date:           As of September 15, 2009

 

	
COMPANY:

 

	
AlumiFuel Power Corporation

 

 

	
By:   _______________________

	
Name:  Henry Fong

Title:    Chief Executive Officer

	  
	  
	
BUYER:

 

	
Name:

 

	
By:                                                                        

	
                       (Signature of Authorized Person)

	
Print Name:

 

	
Date Signed:

	
Address:

 

	
Telephone:

	
Facsimile:

	
Principal Amount of Debentures to be Purchased:

$_______________

	
Tax ID No.  _____________________

 

 

[Signature Page to Securities Purchase Agreement]

 

	
{N0173842; 2}
	  	  

  

  

  

 

	
Exhibit A
	
FORM OF DEBENTURE

 

	
Exhibit B
	
REGISTRATION RIGHTS AGREEMENT

 

	
Exhibit C
	
FORM OF OPINION OF COUNSEL

{N0173842; 2}

  

  

  

EXHIBIT A

 

DEBENTURE

 

NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON CONVERSION HEREOF HAVE BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE OR UNDER THE SECURITIES ACT OF 1933, AS AMENDED.  THE SECURITIES ARE RESTRICTED AND MAY NOT BE OFFERED, RESOLD, PLEDGED OR TRANSFERRED
EXCEPT AS PERMITTED UNDER THE ACT PURSUANT TO REGISTRATION REQUIREMENTS THEREOF OR EXEMPTION THEREFROM.

 

	
$_____________

 

ALUMIFUEL POWER CORPORATION

 

CONVERTIBLE DEBENTURE DUE [_________________, 2012]

[THIRD ANNIVERSARY OF FINAL CLOSING DATE]

 

Date of Issuance:  [_________________] [CLOSING DATE OF THIS BUYER’S FUNDING]

FOR VALUE RECEIVED, ALUMIFUEL POWER CORPORATION, a corporation organized and existing under the laws of the State of Nevada (the "Company"), hereby promises to pay to [________________], having its address at [_________________________________________] or
its assigns (the "Holder" and together with the other holders of Debentures issued pursuant to the Securities Purchase Agreement (as defined below), the "Holders"), the principal sum of [___________________] and 00/100 Dollars ($_______________) on [___________, 201__] [THIRD ANNIVERSARY OF FINAL CLOSING DATE] (the "Maturity Date") and to pay simple
interest on the principal sum outstanding from time to time in arrears (i) upon conversion as provided herein or (ii) on the Maturity Date, at the rate of six percent (6%) per annum (subject to adjustment pursuant to Section 10 hereof).  Interest shall commence to accrue on this Debenture on the first such business day to occur after the date hereof and shall continue on a daily basis until payment in full of the principal sum has been made or duly provided for or until the full outstanding amount of
this Debenture has been converted in accordance with the provisions hereof.  The Company has the option to redeem this Debenture prior to the Maturity Date pursuant to Section 2(b).  All unpaid principal and interest due and payable on the Maturity Date shall be paid in the form of Common Stock of the Company, par value $0.001 per share ("Common Stock") pursuant to Section 3.  The Holder has the option to cause any outstanding principal and interest on this Debenture to be converted
into Common Stock at any time prior to the Redemption Date (as defined below) or the Maturity Date pursuant to Section 2(a).

 

 

 

 

This Debenture is the Debenture referred to in the Securities Purchase Agreement (the "Securities Purchase Agreement") dated as of September 15, 2009, between the Company and the Holder, is subject to the provisions of the Securities Purchase Agreement and further is subject to the following additional provisions:

 

1. This Debenture has been issued subject to investment representations of the original purchaser hereof and may be transferred or exchanged only (a) with the Company’s prior written consent, which consent the Company may grant
or withhold, in its sole discretion, and (b) in compliance with the Securities Act and other applicable state and foreign securities laws.  In the event of any proposed transfer of this Debenture to which the Company has granted its consent, the Company may require, prior to issuance of a new Debenture in the name of such other Person, that it receive reasonable transfer documentation including legal opinions that the issuance of the Debenture in such other name does not and will not cause a violation
of the Securities Act or any applicable state or foreign securities laws. Prior to due presentment for transfer of this Debenture to which the Company has consented, the Company and any agent of the Company may treat the Person in whose name this Debenture is duly registered on the Company's Debenture Register as the owner hereof for the purpose of receiving payment as herein provided and for all other purposes, whether or not this Debenture be overdue, and neither the Company nor any such agent shall be affected
by notice to the contrary.

 

2. Conversion at Holder’s Option; Redemption at Company’s Option.

 

a.           The Holder is entitled to, at any time or from time to time, convert the Conversion Amount into shares of Common Stock, at a conversion price for each share of Common Stock (the “Conversion Price") equal to
seventy five percent (75%) of the lowest closing bid price per share (as reported by Bloomberg LP) of Common Stock for the twenty (20) trading days immediately preceding the date of conversion (subject to equitable adjustments resulting from any stock splits, stock dividends, recapitalizations or similar events occurring during such 20-day period).  Notwithstanding the foregoing, the Holder shall not be entitled to convert any part of this Debenture as to which the Company has previously issued to the
Holder a Redemption Notice in accordance with Section 2(b).  If the Debenture is the subject of an acceleration following the occurrence of an Event of Default, the delivery by a Holder of a Conversion Notice following such acceleration shall be deemed a waiver of such Event of Default by such Holder only, which waiver shall only be applicable to the amount of the Debenture that is sought to be converted pursuant to the Conversion Notice, with the unconverted balance of the indebtedness represented
by such Debenture remaining subject to the Event of Default and acceleration notwithstanding such waiver.  The Conversion Price will be adjusted as provided in Section 6.  For purposes of this Debenture, the following terms have the meanings indicated below:

 

(i) “Conversion Amount” shall mean the sum of (A) all or any portion of the outstanding principal amount of this Debenture, as designated by the Holder upon exercise of its right of conversion plus (B) all interest that has
accrued on the portion of the principal amount that has been designated for payment pursuant to (A).

 

(ii) “Market Price of the Common Stock” means (x) the closing bid price of the Common Stock for the period indicated in the relevant provision hereof (unless a different relevant period is specified in the relevant provision),
as reported by Bloomberg, LP or, if not so reported, as reported on the over-the-counter market or (y) if the Common Stock is listed on a stock exchange, the closing price on such exchange, as reported in The Wall Street Journal.

 

 

2

 

(iii) “Trading Day” shall mean any day on which the New York Stock Exchange is open for business.

 

Conversion shall be effectuated by delivering by facsimile or other delivery to the Company of the completed form of conversion notice attached hereto as Exhibit A, executed by the Holder of the Debenture evidencing such Holder's intention to convert this Debenture or a specified portion hereof.  No fractional shares of Common
Stock or scrip representing fractions of shares will be issued on conversion, but the number of shares issuable shall be rounded to the nearest whole share.  The date on which notice of conversion is given (the "Conversion Date") shall be deemed to be the date on which the Company receives by fax or by mail the conversion notice (“Notice of Conversion”), substantially in the form annexed hereto as Exhibit A, duly executed, to the Company.  Facsimile delivery of the Notice of Conversion
shall be accepted by the Company at facsimile number 561-514-9046, Attention: Corporate Secretary (or to such other facsimile number as the Company may hereafter advise the Holder in writing).  Certificates representing Common Stock upon conversion (and, if applicable, a Trading Opinion) must be delivered to the Holder within five (5) business days from the date of delivery of the Notice of Conversion.

Notwithstanding the foregoing, unless the Holder delivers to the Company written notice at least sixty-one (61) days prior to the effective date of such notice that the provisions of this paragraph (the “Limitation on Ownership”) shall not apply to such Holder, in no event shall a holder of Debentures have the right to convert
Debentures into, nor shall the Company issue to such Holder, shares of Common Stock to the extent that such conversion would result in the Holder and its affiliates together beneficially owning more than 4.99% of the then issued and outstanding shares of Common Stock.  For purposes hereof, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation 13D-G thereunder.

 

b.           So long as no Event of Default (as defined in Section 10) shall have occurred and be continuing, the Company may at its option call for redemption all or part of the Debentures prior to the Maturity Date, as follows:

 

 

	
(i)  
	
The Debentures called for redemption shall be redeemable for an amount (the “Redemption Price”) equal to (x) if this Debenture is called for redemption prior to the date which is earlier than six months from the Issuance Date set forth on the first page of this Debenture (the “Issuance Date”), one hundred twenty percent (120%),
or if this Debenture is called for redemption on or after the date that is six months from the Issuance Date, one hundred thirty one percent (131%), in either case of the principal amount called for redemption, plus (y) interest accrued through the day immediately preceding the date of redemption (the “Redemption Date”).

 

 

	
(ii)  
	
If fewer than all outstanding Debentures are to be redeemed, then all Debentures shall be partially redeemed on a pro rata basis.

 

 

	
(iii)  
	
Prior to the Redemption Date, the Company shall deposit into escrow an amount sufficient for the payment of the aggregate Redemption Price of the Debentures being called for redemption and shall make such funds available on and after the Redemption Date for payment to the Holders who present their Debentures and otherwise comply with the Company’s
instructions contained in the Redemption Notice (as defined below).

 

 

 

3

 

	
(iv)  
	
On the Redemption Date, the Company shall cause the Holders whose Debentures have been presented for redemption to be issued payment of the Redemption Price.  In the case of a partial redemption, the Company shall also issue new Debentures to the Holders for the principal amount remaining outstanding after the Redemption Date promptly after the
Holders’ presentation of the Debentures called for redemption.

 

 

	
(v)  
	
Not less than ten (10) days prior to the Redemption Date, the Company shall issue a notice (the “Redemption Notice”) to each Holder setting forth the following:

 

 

	
1.  
	
the Redemption Date;

 

 

	
2.  
	
the Redemption Price;

 

 

	
3.  
	
the aggregate principal amount of the Debentures being called for redemption;

 

 

	
4.  
	
a statement instructing the Holders to surrender their Debentures for redemption and payment of the Redemption Price, including the name and address of the Company or, if applicable, the paying agent of the Company, where Debentures are to be surrendered for redemption;

 

 

	
5.  
	
a statement advising the Holders that (x) interest will cease to accrue on the Debentures (or, in the case of a partial redemption, that portion of the Debentures being called for redemption) as of the Redemption Date, and (y) that the Debentures (or, in the case of a partial redemption, that portion of the Debentures being called for redemption) as of
the Redemption Date will cease to be convertible into Common Stock as of the Redemption Date; and

 

 

	
6.  
	
in the case of a partial redemption, a statement advising the Holders that after the Redemption Date a substitute Debenture will be issued by the Company after deduction the portion thereof called for redemption, at no cost to the Holder.

 

 

3. Unless demand has otherwise been made by the Holder in writing for payment in cash as provided hereunder, any Debentures not previously tendered to the Company for conversion as of the Maturity Date shall be deemed to have been surrendered
for conversion, without further action of any kind by the Company or any of its agents, employees or representatives, as of the Maturity Date at the Conversion Price applicable on the Maturity Date (“Mandatory Conversion”).

 

 

 

4

 

4. No provision of this Debenture shall alter or impair the obligation of the Company, which is absolute and unconditional to convert this Debenture into Common Stock, at the time, place, and rate herein prescribed.  This Debenture
is a direct obligation of the Company.

 

5. If the Company (a) merges or consolidates with another corporation or business entity and the Company is not the surviving entity or (b) sells or transfers all or substantially all of its assets to another Person and the holders of
the Common Stock are entitled to receive stock, securities or property in respect of or in exchange for Common Stock, then as a condition of such merger, consolidation, sale or transfer, the Company and any such successor, purchaser or transferee will agree that this Debenture may thereafter be converted on the terms and subject to the conditions set forth above into the kind and amount of stock, securities or property receivable upon such merger, consolidation, sale or transfer by a holder of the number of shares
of Common Stock into which this Debenture might have been converted immediately before such merger, consolidation, sale or transfer, subject to adjustments which shall be as nearly equivalent as may be practicable.  In the event of any (i) proposed merger or consolidation where the Company is not the surviving entity or (ii) sale or transfer of all or substantially all of the assets of the Company (in either such case, a "Sale"), the Holder shall have the right to convert by delivering a Notice of Conversion
to the Company within fifteen (15) days of receipt of notice of such Sale from the Company.

 

6. If, at any time while any portion of this Debenture remains outstanding, the Company effectuates a stock split or reverse stock split of its Common Stock or issues a dividend on its Common Stock consisting of shares of Common Stock
or otherwise recapitalizes its Common Stock, the Conversion Price shall be equitably adjusted to reflect such action.  By way of illustration, and not in limitation, of the foregoing (i) if the Company effectuates a 2:1 split of its Common Stock, thereafter, with respect to any conversion for which the Company issues the shares after the record date of such split, the Conversion Price shall be deemed to be one-half of what it had been calculated to be immediately prior to such split; (ii) if the Company
effectuates a 1:10 reverse split of its Common Stock, thereafter, with respect to any conversion for which the Company issues the shares after the record date of such reverse split, the Conversion Price shall be deemed to be the amount of such Conversion Price calculated immediately prior to the record date multiplied by 10; and (iii) if the Company declares a stock dividend of one share of Common Stock for every 10 shares outstanding, thereafter, with respect to any conversion for which the Company issues the
shares after the record date of such dividend, the Conversion Price shall be deemed to be the amount of such Conversion Price calculated immediately prior to such record date multiplied by a fraction, of which the numerator is the number of shares for which a dividend share will be issued and the denominator is such number of shares plus the dividend share(s) issuable or issued thereon.

 

7. All payments contemplated hereby to be made “in cash” shall be made by wire transfer of immediately available funds in such coin or currency of the United States of America as at the time of payment is legal tender for
payment of public and private debts.  All payments of cash and each delivery of shares of Common Stock issuable to the Holder as contemplated hereby shall be made to the Holder to an account designated by the Holder to the Company and if the Holder has not designated any such accounts at the address last appearing on the Debenture Register of the Company as designated in writing by the Holder from time to time; except that the Holder may designate, by notice to the Company, a different delivery address
for any one or more specific payments or deliveries.

 

 

5

 

8. The Holder of the Debenture, by acceptance hereof, agrees that this Debenture is being acquired for investment and that such Holder will not offer, sell or otherwise dispose of this Debenture or the Shares of Common Stock issuable
upon conversion thereof except in compliance with the terms of the Securities Purchase Agreement and the Registration Rights Agreement and under circumstances which will not result in a violation of the Securities Act or any applicable state Blue Sky or foreign laws or similar laws relating to the sale of securities.

 

9. This Debenture shall be governed by and construed in accordance with the laws of the State of New York. Each of the parties consents to the jurisdiction of the federal courts whose districts encompass any part of the City of New York
or the state courts of the State of New York sitting in the City and County of New York in connection with any dispute arising under this Agreement and hereby waives, to the maximum extent permitted by law, any objection, including any objection based on forum non conveniens, to the bringing of any such proceeding in such jurisdictions.  To the extent determined by such court, the Company shall reimburse the Holder for any reasonable legal fees
and disbursements incurred by the Holder in enforcement of or protection of any of its rights under this Debenture or the Securities Purchase Agreement.

 

10. The following shall constitute an "Event of Default":

 

a.           The Company fails in the payment of principal or interest on this Debenture as required to be paid in cash hereunder, and payment shall not have been made for a period of two (2) business days following the payment due date; or

b.           Any of the representations or warranties made by the Company herein, in the Securities Purchase Agreement, the Registration Rights Agreement, dated as of September 15, 2009, between the Company and the Investors therein (the "Registration Rights Agreement"), or in any
certificate or financial or other written statements heretofore or hereafter furnished by the Company to in connection with the execution and delivery of this Debenture, the Securities Purchase Agreement or the Registration Rights Agreement, shall be false or misleading (including without limitation by way of the misstatement of a material fact or the omission of a material fact) in any material respect at the time made; or

 

c.           The Company (i) fails to timely file required SEC reports when due, becomes, is deemed to be or asserts that it is a “shell company” for purposes of the Securities Act, and Rule 144 promulgated thereunder or otherwise takes any action, or refrains from taking
any action, the result of which makes Rule 144 under the Securities Act unavailable to the Buyers for the sale of their Securities, (ii) fails to issue shares of Common Stock to the Holder or to cause its Transfer Agent to issue shares of Common Stock upon exercise by the Holder of the conversion rights of the Holder in accordance with the terms of this Debenture (as to which no cure period shall apply), (iii) fails to transfer or to cause its Transfer Agent to transfer any certificate for shares of Common Stock
issued to the Holder upon conversion of this Debenture as and when required by this Debenture or the Registration Rights Agreement, and such transfer is otherwise lawful or (iv) fails to remove any restrictive legend or to cause its Transfer Agent to transfer any certificate or any shares of Common Stock issued to the Holder upon conversion of this Debenture as and when required by this Debenture, the Agreement or the Registration Rights Agreement and such legend removal is otherwise lawful, and in the case of
clauses (iii) and (iv) such failure shall continue uncured for two (2) business days (matters set forth in clauses (i) and (ii) having no cure period); or

 

 

6

 

d.           The Company shall fail to perform or observe, in any material respect (i) any other covenant, term, provision, condition, agreement or obligation of the Debenture, provided that, other than in the case of such failure under Section 5 hereof, as to which no cure period
shall apply, such failure shall continue uncured for a period of thirty (30) days after written notice from the holder of such failure, or (ii) any covenant, term, provision, condition, agreement or obligation of the Company under the Securities Purchase Agreement or the Registration Rights Agreement and such failure shall continue uncured for a period of either (a) three (3) days after the occurrence of the Company’s failure under Section 4(d), (e) (except as described in clause (i) of Section 10(c), as
to which Section 10(c) shall control), (f), (g) or (h) of the Securities Purchase Agreement, or (b) thirty (30) days after the occurrence of the Company’s failure under any other provision of the Securities Purchase Agreement or of the Registration Rights Agreement, as the case may be; or

 

e.           The Company shall (1) admit in writing its inability to pay its debts generally as they mature; (2) make an assignment for the benefit of creditors or commence proceedings for its dissolution; or (3) apply for or consent to the appointment of a trustee, liquidator or receiver
for its or for a substantial part of its property or business; or

 

f.           A trustee, liquidator or receiver shall be appointed for the Company or for a substantial part of its property or business without its consent and shall not be discharged within sixty (60) days after such appointment; or

 

g.           Any governmental agency or any court of competent jurisdiction at the instance of any governmental agency shall assume custody or control of the whole or any substantial portion of the properties or assets of the Company and shall not be dismissed within sixty (60) days
thereafter; or

 

h.           Any final money judgment, writ or warrant of attachment, or similar process (including an arbitral determination), not subject to appeal, in excess of Fifty Thousand Dollars ($50,000) in the aggregate shall be entered or filed against the Company or any of its properties
or other assets and shall remain unpaid, unvacated, unbonded or unstayed for a period of sixty (60) days or in any event later than five (5) days prior to the date of any proposed sale thereunder; or

 

i.           The occurrence of an event of default under the terms of any indebtedness of the Company or any subsidiary (including but not limited to any Subsidiary) of the Company in the aggregate amount of $50,000 or more which is not waived by the creditors under such indebtedness
(as to which no cure period shall apply); or

 

j.           Bankruptcy, reorganization, insolvency or liquidation proceedings or other proceedings for relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against the Company and, if instituted against the Company, shall not be dismissed
within sixty (60) days after such institution or the Company shall by any action or answer approve of, consent to, or acquiesce in any such proceedings or admit the material allegations of, or default in answering a petition filed in any such proceeding; or

 

k.           The issuance of an order, ruling, finding or similar adverse determination by the Securities and Exchange Commission, the Secretary of State of the State of Nevada, the National Association of Securities Dealers, Inc. or any other securities regulatory body (whether in
the United States, Canada or elsewhere) having proper jurisdiction that the Company and/or any of its past or present directors or officers have committed a material violation of applicable securities laws or regulations; or

 

 

7

 

l.           The Company shall have its Common Stock suspended or delisted from an exchange for a period in excess of five (5) trading days; or

 

m.           Any of the following shall occur:  (i) any of the commitments, contingencies or notes payable described in Note 2 to the Company’s quarterly financial statements included in its Quarterly Report on Form 10-Q for the fiscal quarter ended April 30, 2009 which
remain outstanding as of the date of the Securities Purchase Agreement shall be paid in cash or shall become immediately due and payable by the Company, in each case in an amount equal to $50,000 or more, singly or in the aggregate or (ii) any other event, circumstance or combination thereof shall have occurred which, singly or when taken as a whole, result in a Material Adverse Effect.

 

Then, or at any time thereafter, the Company shall immediately give written notice of the occurrence of such Event of Default to the Holders of all Debentures then outstanding, and in each and every such case, unless such Event of Default shall have been waived in writing by a majority in interest of the Holders of the Debentures (which
waiver shall not be deemed to be a waiver of any subsequent default), then at the option of a majority in interest of the Holders and in the discretion of a majority in interest of the Holders, (i) the interest rate applicable to the Debentures shall be increased to the lesser of eighteen percent (18%) per annum and the maximum interest rate allowable under applicable law, and (ii) the Holder may at its option and discretion declare this Debenture, together with all accrued and unpaid interest thereon, in an
amount equal to 130% of the principal plus accrued and unpaid interest (the “Acceleration Amount”), to be immediately due and payable, without presentment, demand, protest or notice of any kinds, all of which are hereby expressly waived, anything herein or in any note or other instruments contained to the contrary notwithstanding.  A majority in interest of the Holders may immediately enforce any and all of the Holder's rights and remedies provided herein or any other rights or remedies
afforded by law.  Notwithstanding the foregoing, in the case of a default under Section 10(c), the Holder of the Debenture sought to be converted, transferred or de-legended, as the case may be, acting singly, shall have the sole and absolute discretion to increase the applicable interest rate on the Debentures held by such Holder and/or to declare the Debenture(s) held by such Holder to be immediately due and payable.  The Company expressly acknowledges and agrees that the Acceleration Amount
as so increased in the event of a default is reasonable and appropriate due to the inability to define the financial hardship that the Company’s default would impose on the Holders.

 

11. Nothing contained in this Debenture shall be construed as conferring upon the Holder the right to vote or to receive dividends or to consent or receive notice as a shareholder in respect of any meeting of shareholders or any rights
whatsoever as a shareholder of the Company, unless and to the extent converted in accordance with the terms hereof.

 

 

8

 

12. This Debenture may be amended only by the written consent of the parties hereto. Notwithstanding the foregoing, the principal amount of this Debenture shall automatically be reduced by any and all Conversion Amounts (to the extent
that the same relate to principal hereof).  In the absence of manifest error, the outstanding principal amount of the Debenture on the Company’s book and records shall be the correct amount.

 

13. No waivers or consents in regard to any provision of this Debenture may be given other than by an instrument in writing signed by the Holder.

 

{N0173842; 2}

  

9

  

IN WITNESS WHEREOF, the Company has caused this Debenture to be duly executed by an officer thereunto duly authorized.

 

ALUMIFUEL POWER CORPORATION

By:  _____________________________

        Henry Fong

        Chief Executive Officer

 

[Signature Page to Convertible Debenture]

 

 

 

 

 

 

 

 

EXHIBIT A

 

NOTICE OF CONVERSION

 

(To be Executed by the Registered Holder in order to Convert the Debenture)

 

The undersigned hereby irrevocably elects to convert $ ________________ of the principal amount of the above Debenture into Shares of Common Stock of AlumiFuel Power Corporation (the "Company") according to the conditions hereof, as of the date written below.  After
giving effect to the conversion requested hereby, the outstanding principal amount of such debenture is $ ____________________, absent manifest error.

Conversion Date

 

Applicable Conversion Price

 

Signature

Print Name

Address

 

 

 ____________________________________________________________________________

{N0173842; 2}

  

  

  

EXHIBIT B

 

REGISTRATION RIGHTS AGREEMENT

 

 

(CONVERTIBLE DEBENTURES)

 

THIS REGISTRATION RIGHTS AGREEMENT, dated as of (this "Agreement"), is made by and between AlumiFuel Power Corporation, a Nevada corporation, with headquarters located at 7315 East Peakview Avenue, Centennial, CO  80111
(the “Company”), and each entity named on the signature page hereto as “Investors” (each, an “Investor”).

 

W I T N E S S E T H:

 

WHEREAS, upon the terms and subject to the conditions of the Securities Purchase Agreement, dated as of September 15, 2009, between the Buyers listed therein and the Company (the "Securities Purchase Agreement"; terms not otherwise defined herein shall have the meanings ascribed to
them in the Securities Purchase Agreement), the Company has agreed to issue and sell to the Investors one or more debentures of the Company, in a minimum aggregate principal amount of $100,000 and a maximum aggregate amount of $700,000 (the "Debentures"); and

 

WHEREAS, the Debentures are convertible into shares of Common Stock (the "Conversion Shares"; which term, for purposes of this Agreement, shall be 300% of that number of shares of Common Stock into which the Debentures, including without limitation all shares of Common Stock issuable
by the Company in lieu of accrued interest on conversion as contemplated by the Debentures) upon the terms and subject to the conditions contained in the Debentures.

 

WHEREAS, to induce the Investors to execute and deliver the Securities Purchase Agreement, the Company has agreed to provide certain registration rights under the Securities Act of 1933, as amended, and the rules and regulations thereunder, or any similar successor statute (collectively,
the "Securities Act"), with respect to the Conversion Shares;

 

NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Investors hereby agree as follows:

 

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

 

a. “Holders’ Representative” means the Person appointed as the Holders’ Representative by the Investors pursuant to Section 11 hereof.

 

b. "Investor" means a Buyer and any permitted transferee or assignee of a Buyer who agrees to become bound by the provisions of this Agreement in accordance with Section 9 hereof and who holds Debentures or Registrable Securities.

 

 

 

 

c. "Potential Material Event" means any of the following: (i) the possession by the Company of material information not ripe for disclosure in a registration statement, which shall be evidenced by determinations in good faith by the Board
of Directors of the Company that disclosure of such information in the registration statement would be detrimental to the business and affairs of the Company; or (ii) any material engagement or activity by the Company which would, in the good faith determination of the Board of Directors of the Company, be adversely affected by disclosure in a registration statement at such time, which determination shall be accompanied by a good faith determination by the Board of Directors of the Company that the registration
statement would be materially misleading absent the inclusion of such information.

 

d. "Register," "Registered," and "Registration" refer to a registration effected by preparing and filing a Registration Statement or Statements in compliance with the Securities Act and pursuant to Rule 415 under the Securities Act or
any successor rule providing for offering securities on a continuous basis ("Rule 415"), and the declaration or ordering of effectiveness of such Registration Statement by the SEC.

 

e. "Registrable Securities" means the Conversion Shares and, to the extent applicable, any other shares of capital stock or other securities of the Company or any successor to the Company that are issued upon exchange of the Conversion
Shares.

 

f. "Registration Statement" means a registration statement of the Company under the Securities Act.

 

g. “SEC” means the United States Securities and Exchange Commission.

 

2. Piggy-back Registration.  From and after the date that is ninety (90) days after the date of this Agreement and until the  third anniversary of the Closing
Date, for so long as any of the Registrable Securities are outstanding and are not the subject of an effective registration statement, if the Company contemplates making an offering of Common Stock (or other equity securities convertible into or exchangeable for Common Stock) registered for sale under the Securities Act or proposes to file a Registration Statement covering any of its securities other than (i) a registration on Form S-8 or S-4, or any successor or similar forms; and (ii) a shelf registration under
Rule 415 for the sole purpose of registering shares to be issued in connection with the acquisition of assets, the Company will at each such time give prompt written notice to the Holders’ Representative and the Investors of its intention to do so and of the Investor’s rights under this Agreement.  Upon the written request of any Investor made within thirty (30) days after the receipt of any such notice (which request shall specify the Registrable Securities intended to be disposed of by
such Holder and the intended method of disposition thereof), the Company will use its best efforts to effect the registration of all Registrable Securities which the Company has been so requested to register by the Investors, to the extent requisite to permit the disposition (in accordance with the intended methods of disposition) of the Registrable Securities by the Investors requesting registration, by inclusion of such Registrable Securities in the Registration Statement which covers the securities which the
Company proposes to register; provided, that if the Company is unable to register the full amount of Registrable Securities in an “at the market offering” under Commission rules and regulations due to the high percentage of the Company’s Common Stock the Registrable Securities represents (giving effect to all other securities being registered in the Registration Statement), then the Company may reduce, on a pro rata basis, 

 

 

 

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the amount of Registrable Securities subject to the Registration Statement to a lesser amount which equals the maximum number of Registrable Securities that the Company is permitted to register in an “at the market offering”; and provided, further,
that if, at any time after giving written notice of its intention to register any Registrable Securities and prior to the effective date of the Registration Statement filed in connection with such registration, the Company shall determine for any reason either not to register or to delay registration of such Registrable Securities, the Company may, at its election, give written notice of such determination to the Holders’ Representative and the Investors requesting registration and, thereupon, (i) in the
case of a determination not to register, the Company shall be relieved of its obligation to register any Registrable Securities in connection with such registration (but not from its obligation to pay the expenses of registration in connection therewith), and (ii) in the case of a determination to delay registering such Registrable Securities, shall be permitted to delay registering any Registrable Securities, for the same period as the delay in registering such other securities.

 

3. Obligations of the Company.  In connection with the registration of the Registrable Securities, the Company shall do each of the following:

 

(a)           Prepare and file with the SEC such amendments (including post-effective amendments) and supplements to the Registration Statement as set forth in Section 2 and the prospectus used in connection with the Registration Statement as may be necessary to keep the Registration
Statement effective at all times during the period through the earliest of (i) the date that is five (5) years after the last day of the calendar month following the month in which the Registration Statement so filed is declared effective by the SEC, (ii) the date when the Investors may sell all Registrable Securities under Rule 144, or (iii) the date the Investors no longer own any of the Registrable Securities (the “Registration Period”), Registration Period, comply with the provisions of the Securities
Act with respect to the disposition of all Registrable Securities of the Company covered by the Registration Statement until such time as all of such Registrable Securities have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof as set forth in the Registration Statement;

 

(b)           The Company shall permit a single firm of legal counsel designated by the Holders’ Representative (the “Investors’ Counsel”) to review drafts of the Registration Statement and all amendments and supplements thereto a reasonable period of time (but
not less than three (3) business days) prior to their filing with the SEC, and not file any document in a form to which such Investors’ Counsel reasonably objects.  If the Investors’ Counsel objects, the Company shall take under advisement such objections and shall endeavor to promptly make such revisions to the Registration Statement (or ancillary documents and/or SEC filings in connection therewith) as are necessary to satisfy the objections of the Investors’ Counsel;

 

(c)           Notify the Holders’ Representative and the Investors’ Counsel, and any managing underwriters immediately (and, in the case of (i)(A) below, not less than five (5) days prior to the contemplated date of such filing) and (if requested by any the Holders' Representative)
confirm such notice in writing no later than one (1) business day following the day (i)(A) when a Prospectus or any Prospectus supplement or post-effective amendment to the Registration Statement is proposed to be filed; (B) whenever the SEC notifies the Company whether there will be a “review” of  Registration Statement; (C) whenever the Company receives (or a representative of the Company receives on its behalf) any oral or written comments from the SEC relating to a Registration Statement
(copies or, in the case of oral comments, summaries of such comments shall be promptly furnished by the Company to the Holders’ Representative and the Investor’s Counsel); and (D) with respect to the Registration Statement or any post-effective amendment, when 

 

 

 

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the same has become effective; (ii) of any request by the SEC or any other Federal or state governmental authority for amendments or supplements to the Registration Statement or Prospectus or for additional information; (iii) of the issuance by the SEC of any stop order suspending the effectiveness of the Registration Statement covering
any or all of the Registrable Securities or the initiation of any Proceedings for that purpose; (iv) if at any time the Company has actual knowledge that any of the representations or warranties of the Company contained in any agreement (including any underwriting agreement) contemplated hereby ceases to be true and correct in all material respects; (v) 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; and (vi) of the occurrence of any event that to the best knowledge of the Company makes any statement made in the 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 the Registration Statement, Prospectus or other documents so that, in the case of the Registration 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.  In addition, the Company shall respond to the SEC in writing to comments on the Registration Statement by the SEC within fifteen (15) business days of the Company’s receipt thereof, plus any additional time reasonably
required by the Company’s independent auditors to respond to accounting comments and, if requested by the Holders' Representative and the Investors’ counsel, the Company shall furnish the Holders' Representative with copies of all intended written responses to the comments contemplated in clause (C) of this Section 3(c) not later than one (1) business day in advance of the filing of such responses with the SEC so that the Holders’ Representative and the Investors’ Counsel shall have the
opportunity to comment thereon;

 

(d)          Furnish to the Holders’ Representative and the Investors’ Counsel (i) promptly after the same is prepared and publicly distributed, filed with the SEC, or received by the Company, one (1) copy of the Registration Statement, each preliminary Prospectus and Prospectus,
and each amendment or supplement thereto, and (ii) if so requested by any Investor, such number of copies of a Prospectus, and all amendments and supplements thereto and such other documents, as such Investor may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such Investor;

 

(e)           As promptly as practicable after becoming aware thereof, notify the Holders’ Representative of the happening of any event of which the Company has actual knowledge, as a result of which the prospectus included in the Registration Statement, as then in effect, includes
an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and use its best efforts promptly to prepare a supplement or amendment to the Registration Statement or other appropriate filing with the SEC to correct such untrue statement or omission, and deliver a number of copies of such supplement or amendment to the Holders' Representative and each Investor
as such Investor may reasonably request;

 

 

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(f)           As promptly as practicable (and in any event not later than one (1) business day) after becoming aware thereof, notify the Holders’ Representative of the issuance by the SEC of a Notice of Effectiveness or any notice of effectiveness or any stop order or other suspension
of the effectiveness of the Registration Statement at the earliest possible time;

 

(g)           Notwithstanding the foregoing, if at any time or from time to time after the date of effectiveness of a Registration Statement, the Company notifies the Holders’ Representative in writing of the existence of a Potential Material Event, the Investors shall not offer
or sell any Registrable Securities, or engage in any other transaction involving or relating to the Registrable Securities, from the time of the giving of notice with respect to a Potential Material Event until such Investor receives written notice from the Company that such Potential Material Event either has been disclosed to the public or no longer constitutes a Potential Material Event; provided, however,
that the Company may not so suspend the right to such Holders of Registrable Securities for more than two twenty (20) business day periods in the aggregate during any 12-month period ("Suspension Period") with at least a ten (10) business day interval between such periods, during the periods the Registration Statement is required to be in effect;

 

(h)           Use its  reasonable efforts to secure and maintain the designation of all the Registrable Securities covered by the Registration Statement on the NASDAQ/National Market System or the "OTC Bulletin Board Market" or any successor thereto of the National Association
of Securities Dealers Automated Quotations System ("NASDAQ") within the meaning of Rule 11Aa2-1 of the SEC under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the quotation of the Registrable Securities on The NASDAQ National Market System; and further use its efforts to arrange for at least two market makers to register with the National Association of Securities Dealers, Inc. ("NASD") as such with respect to such Registrable Securities;

 

(i)           Provide a Transfer Agent and registrar, which may be a single entity, for the Registrable Securities not later than one (1) business day after the effective date of the Registration Statement;

 

(j)           Cooperate with the Investors to facilitate the timely preparation and delivery of certificates for the Registrable Securities to be offered pursuant to the Registration Statement and enable such certificates for the Registrable Securities to be in such denominations or
amounts as the case may be, as the Investors may reasonably request, and, within five (5) business days after a Registration Statement which includes Registrable Securities is ordered effective by the SEC, the Company shall deliver, and shall cause legal counsel selected by the Company to deliver, to the Transfer Agent for the Registrable Securities (with copies to the Investors whose Registrable Securities are included in such Registration Statement) an appropriate instruction and opinion of such counsel;

 

 

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(k)           Take all other reasonable actions necessary to expedite and facilitate disposition by the Investor of the Registrable Securities pursuant to the Registration Statement;

 

(l)           Not take, or omit to take, any actions that would preclude the filing or effectiveness of the Registration Statement or require the withdrawal of the Registration Statement;

 

(m)           If the Registration Statement has been filed but has not been declared effective by the SEC, not complete any acquisitions or business combinations until the SEC has declared effective the Registration Statement that registers the Registrable Securities.

 

4. Payments by the Company.  Unless the Company's performance is waived in writing by the Holders' Representative:

 

(i) If the Company fails to satisfy its obligations under Sections 2 or 3, then the Company shall immediately pay to the Investors without demand therefor a cash amount equal to 2% per month of the outstanding principal amount of the
Debentures and, until such time as all such obligations shall have been satisfied, the same amount shall accrue and become payable to the Investors within three days on each subsequent month until such obligations shall have been satisfied.  In light of the difficulty of ascertaining the amount of damage that the Investors will suffer as a result of the Company’s failure to comply with its obligations under Sections 2 or 3, all amounts payable under this Section 4 shall be payable as liquidated
damages, and not as a penalty.  The Company shall keep the Registration Statement effective throughout the Registration Period.

 

(ii) The parties acknowledge that the damages which may be incurred by the Investors if the Company fails to satisfy any of its obligations under Sections 2 or 3 may be difficult to ascertain.  The parties agree that the payments
to be paid to the Investors under this Section 4 represent a reasonable estimate on the part of the parties, as of the date of this Agreement, of the amount of such damages.

 

5. Obligations of the Investors.  In connection with the registration of the Registrable Securities, the Investors shall have the following obligations:

 

(a) It shall be a condition precedent to the obligations of the Company to complete the registration pursuant to this Agreement with respect to the Registrable Securities of a particular Investor that such Investor shall furnish to the
Company such information regarding itself, the Registrable Securities held by it, and the intended method of disposition of the Registrable Securities held by it, as shall be reasonably required to effect the registration of such Registrable Securities and shall execute such documents in connection with such registration as the Company may reasonably request.  At least ten (10) business days prior to the first anticipated filing date of the Registration Statement, the Company shall notify each Investor
of the information the Company requires from each such Investor (the "Requested Information") if such Investor elects to have any of such Investor's Registrable Securities included in the Registration Statement.  If at least two (2) business days prior to the filing date the Company has not received the Requested Information from an Investor (a "Non-Responsive Investor"), then the Company may file the Registration Statement without including Registrable Securities of such Non-Responsive Investor;

 

 

6

 

(b) Each Investor, by such Investor's acceptance of the Registrable Securities, agrees to cooperate with the Company as reasonably requested by the Company in connection with the preparation and filing of the Registration Statement hereunder,
unless such Investor has notified the Company in writing of such Investor's election to exclude all of such Investor's Registrable Securities from the Registration Statement; and

 

(c) Each Investor agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 3(d) or 3(e), above, such Investor will immediately discontinue disposition of Registrable Securities
pursuant to the Registration Statement covering such Registrable Securities until such Investor's receipt of the copies of the supplemented or amended prospectus contemplated by Section 3(d) or 3(e) and, if so directed by the Company, such Investor shall deliver to the Company (at the expense of the Company) or destroy (and deliver to the Company a certificate of destruction) all copies in such Investor's possession, of the prospectus covering such Registrable Securities current at the time of receipt of such
notice.

 

(d) Each holder of Registrable Securities that sells Registrable Securities pursuant to a registration under this Agreement agrees that in connection with registration as follows:

 

(i) Such seller shall cooperate as reasonably requested by the Company with the Company in connection with the preparation of the registration statement, and for as long as the Company is obligated to file and keep effective the registration
statement, shall provide to the Company, in writing, for use in the registration statement, all such information regarding such seller and its plan of distribution of the Registrable Securities as may reasonably be necessary to enable the Company to prepare the registration statement and prospectus covering the Registrable Securities, to maintain the currency and effectiveness thereof and otherwise to comply with all applicable requirements of law in connection therewith; and

 

(ii) During such time as such seller may be engaged in a distribution of the Registrable Securities, such seller shall comply with Rules 10b-6 and 10b-7 promulgated under the Securities Exchange Act and pursuant thereto it shall, among
other things; (x) not engage in any stabilization activity in connection with the securities of the Company in contravention of such rules; (y) distribute the Registrable Securities under the registration statement solely in the manner described in the registration statement; and (z) cease distribution of such Registrable Securities pursuant to such registration statement upon written notice from the Company that the prospectus covering the Registrable Securities contains any untrue statement of a material fact
required to be stated therein or necessary to make the statements therein not misleading.

 

 

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6. Expenses of Registration.

 

(a) All reasonable expenses (other than underwriting discounts and commissions of the Investors) incurred for the Registration Statement covering the Registrable Securities applicable to the Debentures shall be borne by the Company, up
to an aggregate amount of $50,000 in connection with registrations, filings or qualifications pursuant to Sections 2 and 3, a fee for the Investors’ Counsel of not more than $5,000 and including, without limitation, all registration, listing, and qualifications fees, printers, legal and accounting fees and the fees and disbursements of counsel for the Company.

 

(b) The Company does not have, as of the date hereof, and neither the Company nor any of its subsidiaries (including but not limited to any Subsidiary) shall have, on or after the date of this Agreement, entered into any agreement with
respect to its securities that is inconsistent with the rights granted to the Investors in this Agreement or otherwise conflicts with the provisions hereof.  Except as disclosed in the Securities Purchase Agreement or the other documents entered into simultaneously therewith, the Company has not previously entered into any agreement granting any registration rights with respect to any of its securities to any Person.  Without limiting the generality of the foregoing, without the written consent
of the Investors holding a majority of the Registrable Securities, the Company shall not grant to any Person the right to request the Company to register any securities of the Company under the Securities Act unless the rights so granted are subject in all respects to the prior rights in full of the Investors set forth herein, and are not otherwise in conflict or inconsistent with the provisions of this Agreement and the other Transaction Documents.

 

7. Indemnification.  In the event any Registrable Securities are included in a Registration Statement under this Agreement:

 

(a) To the extent permitted by law, the Company will indemnify and hold harmless the Holders’ Representative, the Investor’s Counsel and each Investor who holds such Registrable Securities, the directors, managers, partners,
stockholders and members, if any, of the Holders’ Representative, the Investor’s Counsel or such Investor, the officers and employees, if any, of the Holders’ Representative, the Investor’s Counsel or such Investor, and each Person, if any, who controls the Holders’ Representative, the Investors Counsel or any Investor within the meaning of the Securities Act or the Exchange Act (each, an "Indemnified Person" or "Indemnified Party"), against any losses, claims, damages, liabilities
or expenses (joint or several) incurred (collectively, "Claims") to which any of them may become subject under the Securities Act, the Exchange Act or otherwise, insofar as such Claims (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon any of the following statements, omissions or violations in the Registration Statement, or any post-effective amendment thereof, or any prospectus included therein: (i) any untrue statement or alleged untrue statement
of a material fact contained in the Registration Statement or any post-effective amendment thereof or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, (ii) any untrue statement or alleged untrue statement of a material fact contained in the final prospectus (as amended or supplemented, if the Company files any amendment thereof or supplement thereto with the SEC) or the omission or alleged omission to state
therein any material fact necessary to make the statements made therein, in light of the circumstances under which the statements therein were made, not misleading or (iii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any state securities law or any rule or regulation under the Securities Act, the 

 

 

 

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Exchange Act or any state securities law (the matters in the foregoing clauses (i) through (iii) being, collectively, "Violations").  Subject to clause (b) of this Section 7, the Company shall reimburse the Investors, promptly as such expenses are incurred and are due and payable, for any legal fees or other reasonable expenses incurred by
them in connection with investigating or defending any such Claim.  Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 7(a) shall not (I) apply to a Claim arising out of or based upon a Violation which occurs in reliance upon and in conformity with information furnished in writing to the Company by or on behalf of any Indemnified Person expressly for use in connection with the preparation of the Registration Statement or any such amendment
thereof or supplement thereto, if such prospectus was timely made available by the Company pursuant to Section 3(b) hereof;  (II) be available to the extent such Claim is based on a failure of the Investor to deliver or cause to be delivered the prospectus made available by the Company;  (III) apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of the Company, which consent shall not be unreasonably withheld; or (IV) apply to any
violation or alleged violation by an Indemnified Person of the Securities Act, the Exchange Act, any state securities laws or any rule or regulation under the Securities Act, the Exchange Act, or any state securities laws.   Each Investor will indemnify the Company and its officers, directors and agents (each, an "Indemnified Person" or "Indemnified Party") against any claims arising out of or based upon a Violation which occurs in reliance upon and in conformity with information furnished in writing
to the Company, by or on behalf of such Investor, expressly for use in connection with the preparation of the Registration Statement, subject to such limitations and conditions as are applicable to the Indemnification provided by the Company to this Section 7.  Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Indemnified Person and shall survive the transfer of the Registrable Securities by the Investors.

 

(b) Promptly after receipt by an Indemnified Person or Indemnified Party under this Section 7 of notice of the commencement of any action (including any governmental action), such Indemnified Person or Indemnified Party shall, if a Claim
in respect thereof is to be made against any indemnifying party under this Section 7, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume control of the defense thereof with counsel mutually satisfactory to the indemnifying party and the Indemnified Person or the Indemnified Party, as the case
may be.  In case any such action is brought against any Indemnified Person or Indemnified Party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate in, and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, assume the defense thereof, subject to the provisions herein stated and after notice from the indemnifying party to such Indemnified Person or Indemnified Party of its election so to
assume the defense thereof, the indemnifying party will not be liable to such Indemnified Person or Indemnified Party under this Section 7 for any legal or 

 

 

 

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other reasonable out-of-pocket expenses subsequently incurred by such Indemnified Person or Indemnified Party in connection with the defense thereof other than reasonable costs of investigation, unless the indemnifying party shall not pursue the action to its final conclusion.  The Indemnified Person or Indemnified Party shall have the right
to employ separate counsel in any such action and to participate in the defense thereof, but the fees and reasonable out-of-pocket expenses of such counsel shall not be at the expense of the indemnifying party if the indemnifying party has assumed the defense of the action with counsel reasonably satisfactory to the Indemnified Person or Indemnified Party. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action shall not relieve such indemnifying
party of any liability to the Indemnified Person or Indemnified Party under this Section 7, except to the extent that the indemnifying party is prejudiced in its ability to defend such action.  The indemnification required by this Section 7 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as such expense, loss, damage or liability is incurred and is due and payable.

 

8. Contribution.  To the extent any indemnification by an indemnifying party is prohibited or limited by law, the indemnifying party agrees to make the maximum contribution
with respect to any amounts for which it would otherwise be liable under Section 7 to the fullest extent permitted by law; provided, however, that (a) no contribution shall be made under circumstances where the maker would not have been liable for indemnification under the fault standards set forth in Section 7; (b) no seller of Registrable Securities guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any seller of Registrable Securities who was not guilty of such fraudulent misrepresentation; and (c) contribution by any seller of Registrable Securities shall be limited in amount to the net amount of proceeds received by such seller from the sale of such Registrable Securities.

 

9. Reports under Exchange Act.  With a view to making available to the Investors the benefits of Rule 144 promulgated under the Securities Act or any other similar rule
or regulation of the SEC that may at any time permit the Investors to sell securities of the Company to the public without registration ("Rule 144"), the Company agrees to:

 

a. make and keep public information available, as those terms are understood and defined in Rule 144;

 

b. file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act;

 

c. furnish to each Investor so long as such Investor owns Registrable Securities, promptly upon request, (i) a written statement by the Company that it has complied with the reporting requirements of Rule 144, the Securities Act and the
Exchange Act, (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company and (iii) such other information as may be reasonably requested to permit the Investors to sell such securities pursuant to Rule 144 without registration; and

 

d.   cause its counsel to deliver to its Transfer Agent such opinions of law as shall be required to remove restrictive legends on the shares to be sold in the standard form then employed for such purpose by such counsel or in such other form as is reasonably acceptable to such Transfer Agent.

 

 

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10. Amendment of Registration Rights.  Any provision of this Agreement may be amended and the observance thereof may be waived (either generally or in a particular instance
and either retroactively or prospectively), only with the written consent of the Company and Investors who hold a fifty (50%) percent interest of the Registrable Securities.  Any amendment or waiver effected in accordance with this Section 10 shall be binding upon each Investor and the Company.

 

11. Appointment and Indemnification of Holders’ Representative.  Each of the Investors hereby appoints as the Holders’ Representative Divine Capital Markets,
LLC to so act until such time as all Registrable Securities have become Registered and there shall be no Debentures issued and outstanding, or such time as a successor to the then-acting Holders’ Representative is appointed in writing signed by the Investors representing greater than 50% of the then-outstanding Debentures and Registrable Securities.  The Holders’ Representative shall have full discretion and authority, without consultation with the Holders, to accept and give notices on
behalf of the Holders, to communicate with the Holders at such times and in such manner as the Holders’ Representative in its discretion determines is appropriate and to grant extensions of deadlines or waive any payment obligations set forth in Sections 2 and 3 hereof.  The Holders' Representative shall not have discretion or authority to exercise any investment discretion over the Debentures, including causing the conversion of any Debentures, absent a Holder's express written authority.  Notwithstanding
any provision to the contrary contained elsewhere herein or in the Securities Purchase Agreement or the Debentures, the Holders’ Representative shall not have any duties or responsibilities, except those expressly set forth herein, nor shall the Holders’ Representative have or be deemed to have any fiduciary relationship with any Holder, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or the Securities Purchase Agreement or
Debentures or otherwise exist against the Holders’ Representative.  The Holders shall indemnify upon demand the Holders’ Representative (to the extent not reimbursed by or on behalf of the Company and without limiting the obligation of the Company to do so under Section 7 hereof or under any other agreement or applicable law), pro rata, and hold harmless the Holders’ Representative from and against any and all against any losses,
claims, damages, liabilities or expenses (joint or several) incurred (collectively, "Holders’ Representative’s Claims") incurred by it; provided, however, that no Holder shall be liable for the payment to the Holders’ Representative of any portion of such Holders’ Representative’s Claims to the extent determined in a final, nonappealable judgment by a court of competent
jurisdiction to have resulted from the Holders’ Representative’s own gross negligence or willful misconduct; provided, however, that no action taken in accordance with the directions of the Holders shall be deemed to constitute gross negligence or willful misconduct for purposes of this Section 11.  Without limitation of the foregoing, each Holder shall reimburse the Holders’
Representative upon demand for its ratable share of any costs or out-of-pocket expenses incurred by the Holders’ Representative in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement, the Securities Purchase Agreement, the Debentures, or any document contemplated by or referred to herein, to the extent that
the Holders’ Representative is not reimbursed for such expenses by or on behalf of the Company.

 

 

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12. Miscellaneous.

 

a. A Person or entity is deemed to be a holder of Registrable Securities whenever such Person or entity owns of record such Registrable Securities.  If the Company receives conflicting instructions, notices or elections from
two or more Persons or entities with respect to the same Registrable Securities, the Company shall act upon the basis of instructions, notice or election received from the registered owner of such Registrable Securities.

 

b. Notices required or permitted to be given hereunder shall be given in the manner contemplated by the Securities Purchase Agreement, (i) if to the Company or to the Investors, to their respective address contemplated by the Securities
Purchase Agreement, and (iii) if to any other Investor, at such address as such Investor shall have provided in writing to the Company, or at such other address as each such party furnishes by notice given in accordance with this Section 12(b).

 

c. Failure of any party to exercise any right or remedy under this Agreement or otherwise, or delay by a party in exercising such right or remedy, shall not operate as a waiver thereof.

 

d. This Agreement shall be governed by and interpreted in accordance with the laws of the State of New York for contracts to be wholly performed in such state and without giving effect to the principles thereof regarding the conflict
of laws.  Each of the parties consents to the jurisdiction of the federal courts whose districts encompass any part of the City of New York or the state courts of the State of New York sitting in the City of New York in connection with any dispute arising under this Agreement and hereby waives, to the maximum extent permitted by law, any objection, including any objection based on forum non conveniens, to the bringing of any such proceeding in
such jurisdictions.  To the extent determined by such court, the Company shall reimburse the Buyer for any reasonable legal fees and disbursements incurred by the Buyer in enforcement of or protection of any of its rights under this Agreement.

 

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

 

f. Subject to the requirements of Section 9 hereof, this Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties hereto.

 

g. All pronouns and any variations thereof refer to the masculine, feminine or neuter, singular or plural, as the context may require.

 

h. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning thereof.

 

 

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i. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which shall constitute one and the same agreement.  This Agreement, once executed by a party, may be delivered
to the other party hereto by telephone line facsimile transmission of a copy of this Agreement bearing the signature of the party so delivering this Agreement.

 

j. The Company acknowledges that any failure by the Company to perform its obligations under Sections 2 or 3 or any delay in such performance could result in loss to the Investors, and the Company agrees that, in addition to any other
liability the Company may have by reason of such failure or delay, the Company shall be liable for all direct damages caused by any such failure or delay, unless the same is the result of force majeure.  Neither party shall be liable for consequential damages.

 

k. This Agreement constitutes the entire agreement among the parties hereto with respect to the subject matter hereof.  There are no restrictions, promises, warranties or undertakings, other than those set forth or referred
to herein.  This Agreement supersedes all prior agreements and understandings among the parties hereto with respect to the subject matter hereof. This Agreement may be amended only by an instrument in writing signed by the party to be charged with enforcement thereof.

 

 

[Signature Page Follows]

 

 

  

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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed by their respective officers thereunto duly authorized as of the day and year first above written.

 

	
COMPANY:
	  
	
AlumiFuel Power Corporation
	  
	
By:   _____________________________
	  
	
       Name:  Henry Fong
	  
	  	
Title:           Chief Executive Officer

	
INVESTOR:

 
	  
	  	  
	
Print Name of Investor Above
	  
	
By:                                                        
	  
	
Investor Signature Above

Print Name of Signatory:  _______________

Title of Signatory:   ____________________

 
	  

 

[Signature Page to Registration Rights Agreement]

 

  

  

  

EXHIBIT C

[Letterhead of Company Counsel]

[Date of Closing]

TO THE BUYERS

NAMED ON SCHEDULE I

Re:           Securities Purchase Agreement

Ladies and Gentlemen:

We have acted as counsel AlumiFuel Power Corporation. (the "Company"), a Nevada corporation, in connection with the transactions under (i) the Securities Purchase Agreement by and among each entity named therein as a “Buyer” (each, a “Buyer”) and the Company, dated as of September 15, 2009 (the "Securities Purchase
Agreement"), (ii) the Registration Rights Agreement between the Buyers and the Company, dated as of September 15, 2009 (the “Registration Rights Agreement”) and (iii) the Company’s Convertible Debenture due 201__ (the "Debentures," and, together with the Securities Purchase Agreement and the Registration Rights Agreement, the "Transaction Documents").  This opinion is furnished to you pursuant to Section 8 of the Securities Purchase Agreement.  All capitalized terms used
herein have the meanings defined for them in the Securities Purchase Agreement unless otherwise defined herein.

 

As counsel to the Company, we have examined originals or copies of such corporate records of the Company, certificates of public officials and such other documents as we have deemed necessary for the purpose of rendering this opinion letter.

 

In rendering the opinions expressed below, we have assumed (i) the valid existence in the jurisdiction of its organization of each party to the Transaction Documents other than the Company, (ii) the due authorization, execution and delivery of the Transaction Documents by the parties thereto other than the Company, (iii) the power and
authority of each party to the Transaction Documents, other than the Company, to execute, deliver and perform the same without violating its certificate of incorporation or bylaws or any other organizational or governing documents or any law or governmental rule or regulation applicable to it, (iv) that the execution, delivery and performance of the Transaction Documents by each party thereto, other than the Company, will not conflict with, constitute a default under or result in a breach of any requirement of
law or any contractual obligation of any such party, (v) the genuineness of all signatures and the authority of all Persons signing each of the Transaction Documents on behalf of the parties thereto other than the Company, and (iv) the authenticity of all documents submitted to us as certified, conformed or photostatic copies and the authenticity of the originals of such copies.

 

 

 

 

As to certain factual matters, we have, to the extent deemed appropriate by us, relied upon certificates of officers of the Company and the Buyers (including, without limitation, all certificates delivered by them in connection with the Securities Purchase Agreement) and the representations and warranties of the Company and the Buyers
contained in the Transaction Documents (including the Schedules and Exhibits thereto), and we have not independently verified the information contained in such certificates or the Transaction Documents.

 

As used herein, "to our knowledge" means the conscious awareness (without any independent investigation) of facts or other information by any lawyer in our Firm actively involved in the negotiation of the transactions described herein. The term "to our knowledge" specifically excludes all factual matters that would be known to us by constructive,
implied or imputed knowledge.

 

Based upon the foregoing and subject to the qualifications hereinafter set forth, we are of the opinion that:

 

	
1.  
	
The Company is a corporation organized and existing under the laws of the State of Nevada and its status is active.  The Company has the corporate or, as the case may be, to conduct its business and, to our knowledge, is qualified as a foreign corporation or limited liability company, as the case may be, to do business and is in good standing
in the state of its organization and each other jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure to so qualify or be in good standing would not have a Material Adverse Effect.

 

	
2.  
	
The Company has the corporate power to perform its obligations under the Transaction Documents and to sell, issue and deliver the Debentures. The execution and delivery of the Transaction Documents by the Company and the consummation by it of the transactions contemplated thereby have been authorized by all necessary corporate action. Each of the Transaction
Documents has been executed and delivered by the Company, and each of the Transaction Documents constitutes valid and binding obligations of the Company enforceable against the Company under the law of New York and the federal law of the United States.

 

	
3.  
	
The execution, delivery and performance of the Transaction Documents by the Company and the consummation by the Company of the transactions contemplated thereby, including, without limitation, the sale, issuance and delivery of the Debentures, do not to our knowledge (i) result in a violation of the Company's Articles of Incorporation, as amended (the
"Articles”) or By-Laws; (ii) conflict with, or constitute a material default (or an event that with notice or lapse of time or both would become a material default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any material agreement, indenture, instrument or any "lock-up" or similar provision of any underwriting or similar agreement to which the Company is a party; or (iii) result in a violation of any federal or state law, rule or regulation applicable
to the Company or by which any property or asset of the Company is bound or affected, except for such violations as would not, individually or in the aggregate, have a Material Adverse Effect.

 

	
4.  
	
Assuming the accuracy of the Buyers’ representations and warranties under Section 2 of the Securities Purchase Agreement, the purchase and sale of the Debentures pursuant to the Transaction Documents is exempt from registration under the Securities Act of 1933 (as amended), pursuant to Section 4(2) thereof.

 

 

2

 

	
5.  
	
To our knowledge, there are no claims, actions, suits, proceedings or investigations that are pending against the Company which could reasonably be expected to have a Material Adverse Effect.

 

	
6.  
	
Upon conversion of the Debenture in accordance with the terms therein, the Common Stock to be issued thereunder will be authorized, issued and fully paid in non-assessable shares of the Company.

 

	
7.  
	
The authorized capital stock of the Company is 510,000,000 shares of capital stock, of which (i) 10,000,000 are shares of Preferred Stock, par value $0.001 per share, of which [___________ shares are designated as ____________, of which _____________ shares are issued and outstanding] and (ii) 500,000,000 shares of Common Stock, of which _______________
shares are issued and outstanding.

 

Our opinions expressed herein are qualified as follows:

A. The opinions expressed herein are qualified to the extent that the validity, binding effect and enforceability against the Company of its obligations under the Transaction Documents may be limited or otherwise afforded by the unenforceability,
under certain circumstances, of provisions indemnifying, or prospectively releasing, a party against liability for its own wrongful or negligent acts or where a release or indemnification provision is contrary to public policy.

 

B. Our opinions concerning the validity, binding effect and enforceability against the Company of its obligations under the Transaction Documents mean that (i) the Transaction Documents constitute an effective contract under applicable
law, (ii) the Transaction Documents are not invalid in their entirety because of a specific statutory prohibition or public policy and are not subject in their entirety to a contractual defense, and (iii) some remedy is available if the Company is in material default under the Transaction Documents.  Our opinions herein on the enforceability of the Company's obligations under the Transaction Documents are qualified to the extent that: (iv) the availability of any specific remedy provided therein and
any other equitable remedies, including without limitation specific performance, is subject to the exercise of judicial discretion in accordance with general principles of equity and public policy (regardless of whether such enforceability is considered in a proceeding in equity or at law) and (v) the enforceability of any agreement or obligation of the Company may be limited by (x) bankruptcy, rehabilitation, liquidation, conservation, dissolution, insolvency, reorganization, moratorium, fraudulent conveyance,
receivership or other similar laws now or hereafter in effect relating to creditors' rights generally and (y) the effect of general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law), including without limitation, (1) the possible unavailability of specific performance, injunctive relief or any other equitable remedy and (2) concepts of materiality, commercial reasonableness, conscionability, good faith and fair dealing.

 

 

3

 

C. We express no opinion herein as to the applicability to the obligations of the Company (or the enforceability thereof) of Section 548 of the U.S. Bankruptcy Code or any other provision of law relating to fraudulent
transfers, conveyances and obligations.

 

We express no opinion herein as to laws of any jurisdiction other than the law of the State of New York, the corporate law of the State of Nevada and the Federal law of the United States.  In rendering this opinion, we assume that the law of New York is identical to the law of Nevada in all respects.

 

The opinions contained herein are limited to those matters expressly covered by numbered paragraphs (1) through (7) above; no opinion is to be implied in respect of any other matter.  The opinions set forth in numbered paragraphs (1) through (7) are as of the date hereof and we disclaim any undertaking to update this letter or
otherwise advise you as to any changes of law or fact which may hereafter be brought to our attention.

 

This letter and the opinions contained herein are furnished by us as counsel to the Company in connection with the transactions described above and are solely for your benefit and are not to be made available to or relied upon in any manner by any other Person, firm, or entity or for any other purpose without our prior written consent.

 

Very truly yours,

 

  

4

  

SCHEDULE I TO COMPANY COUNSEL LEGAL OPINION

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