Document:

EXHIBIT
      10.1

     

    SECURITIES
      PURCHASE AGREEMENT

     

    This
      Securities Purchase Agreement (this “Agreement”)
      is
      dated as of February 20, 2007, among Telestone Technologies Corporation, a
      Delaware corporation (the “Company”),
      and
      each purchaser identified on the signature pages hereto (each, including its
      successors and assigns, a “Purchaser”
and
      collectively the “Purchasers”).

     

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

     

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

     

    ARTICLE
      I.

    DEFINITIONS

     

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

     

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

     

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

     

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

     

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

     

    “Closing
      Date”
means
      the Trading Day when all of the Transaction Documents have been executed and
      delivered by the applicable parties thereto, and all conditions precedent to
      (i)
      the Purchasers’ obligations to pay the Subscription Amount and (ii) the
      Company’s obligations to deliver the Securities have been satisfied or
      waived.

     

    “Commission”
means
      the Securities and Exchange Commission.

     

    
      
        
        

      

      
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    “Common
      Stock”
means
      the common stock of the Company, par value $.001 per share, and any other class
      of securities into which such securities may hereafter be reclassified or
      changed into. 

     

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

     

    “Company
      Counsel” means Kirkpatrick & Lockhart Preston Gates Ellis LLP, with offices
      located at Suite 711-712, Tower W1, Oriental Plaza No.1 East Chang An Avenue,
      Beijing, Peoples Republic of China 100738 and 925 Fourth Avenue, Suite 2900,
      Seattle, Washington 98102.

     

    “Disclosure
      Schedules”
means
      the Disclosure Schedules of the Company delivered concurrently herewith.

     

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

     

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

     

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

    

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

     

    “FWS”
means
      Feldman Weinstein & Smith LLP with offices located at 420 Lexington Avenue,
      Suite 2620, New York, New York 10170-0002.

     

    
      
        
        

      

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

    “Per
      Share Purchase Price”
equals
      $9.00, subject to adjustment for reverse and forward stock splits, stock
      dividends, stock combinations and other similar transactions of the Common
      Stock
      that occur after the date of this Agreement.

     

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

     

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

     

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

     

    “Purchaser
      Party”
shall
      have the meaning ascribed to such term in Section 4.9.

     

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

     

    “Registration
      Statement”
means
      a
      registration statement meeting the requirements set forth in the Registration
      Rights Agreement and covering the resale by the Purchasers of the Shares and
      the
      Warrant Shares. 

     

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

     

    
      
        
        

      

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

     

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

     

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

     

    “Securities
      Act”
means
      the Securities Act of 1933, as amended, and the rules and regulations
      promulgated thereunder.

     

    “Shareholder
      Approval”
means
      such approval as may be required by the applicable rules and regulations of
      the
      Nasdaq Global Market from the shareholders of the Company with respect to the
      transactions contemplated by the Transaction Documents, including the issuance
      of all of the Shares and Warrant Shares in excess of 19.99% of the issued and
      outstanding Common Stock on the Closing Date.

     

    “Shares”
means
      the shares of Common Stock issued or issuable to each Purchaser pursuant to
      this
      Agreement.

     

    “Short
      Sales”
means
      all “short sales” as defined in Rule 200 of Regulation SHO under the Exchange
      Act (but
      shall not be deemed to include the location and/or reservation of borrowable
      shares of Common Stock). 

     

    “Subscription
      Amount”
means,
      as to each Purchaser, the aggregate amount to be paid for Shares and Warrants
      purchased hereunder as specified below such Purchaser’s name on the signature
      page of this Agreement and next to the heading “Subscription Amount,” in United
      States dollars and in immediately available funds.

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

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

     

    “Transfer
      Agent”
means
      Corporate
      Stock Transfer, Inc., with a mailing address of 3200 Cherry Creek Drive South
      Suite 430, Denver, Colorado 80209 and a facsimile number of (303)
      282-5800,
      and any
      successor transfer agent of the Company.

     

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

     

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

     

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

     

    ARTICLE
      II.

    PURCHASE
      AND SALE

     

    2.1  Closing.
      On the
      Closing Date, upon the terms and subject to the conditions set forth herein,
      substantially concurrent with the execution and delivery of this Agreement
      by
      the parties hereto, the Company agrees to sell, and each Purchaser, severally
      and not jointly, agrees to purchase, an aggregate of, up to $[___,000,000 of
      Shares and Warrants. Each Purchaser shall deliver to the Company, via wire
      transfer or a certified check, immediately available funds equal to its
      Subscription Amount and the Company shall deliver to each Purchaser its
      respective Shares and a Warrant as determined pursuant to Section 2.2(a), and
      the Company and each Purchaser shall deliver the other items set forth in
      Section 2.2 deliverable at the Closing. Upon satisfaction of the conditions
      set
      forth in Sections 2.2 and 2.3, the Closing shall occur at the offices of FWS,
      or
      such other location as the parties shall mutually agree.

     

    
      
        
        

      

      
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    2.2     Deliveries.

     

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

     

    (i)  this
      Agreement duly executed by the Company;

     

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

     

    (iii)  a
      certificate evidencing a number of Shares equal to such Purchaser’s Subscription
      Amount divided by the Per Share Purchase Price, registered in the name of such
      Purchaser;

     

    (iv)  a
      Warrant
      registered in the name of such Purchaser to purchase up to a number of shares
      of
      Common Stock equal to 20% of such Purchaser’s Subscription Amount divided by the
      Per Share Purchase Price, with an exercise price equal to $11.60, subject to
      adjustment therein; and

     

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

     

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

     

    (i)  this
      Agreement duly executed by such Purchaser;

     

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

     

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

     

    2.3  Closing
      Conditions. 

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

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

     

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

     

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

     

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

     

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

     

    ARTICLE
      III.

    REPRESENTATIONS
      AND WARRANTIES

     

    3.1    
      Representations and Warranties of the Company. Except
      as set forth in the Disclosure Schedules which Disclosure Schedules shall be
      deemed a part hereof and shall qualify any representation or otherwise made
      herein to the extent of the disclosure contained in the corresponding section
      of
      the Disclosure Schedules, the Company hereby makes the following representations
      and warranties to each Purchaser:

     

    (a)  Subsidiaries.
      All of
      the direct and indirect subsidiaries of the Company are set forth in Exhibit
      21
      to the Company’s most recent Annual Report on Form 10-KSB). The Company owns,
      directly or indirectly, all of the capital stock or other equity interests
      of
      each Subsidiary free and clear of any Liens, and all of the issued and
      outstanding shares of capital stock of each Subsidiary are validly issued and
      are fully paid, non-assessable and free of preemptive and similar rights to
      subscribe for or purchase securities. If the Company has no subsidiaries, then
      all other references to the Subsidiaries or any of them in the Transaction
      Documents shall be disregarded.

     

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

     

    
      
        
        

      

      
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    (c)  Authorization;
      Enforcement.
      The
      Company has the requisite corporate power and authority to enter into and to
      consummate the transactions contemplated by each of the Transaction Documents
      and otherwise to carry out its obligations hereunder and thereunder. The
      execution and delivery of each of the Transaction Documents by the Company
      and
      the consummation by it of the transactions contemplated hereby and thereby
      have
      been duly authorized by all necessary action on the part of the Company and
      no
      further action is required by the Company, its board of directors or its
      stockholders in connection therewith other than in connection with the Required
      Approvals. Each Transaction Document has been (or upon delivery will have been)
      duly executed by the Company and, when delivered in accordance with the terms
      hereof and thereof, will constitute the valid and binding obligation of the
      Company enforceable against the Company in accordance with its terms except
      (i)
      as limited by general equitable principles and applicable bankruptcy,
      insolvency, reorganization, moratorium and other laws of general application
      affecting enforcement of creditors’ rights generally, (ii) as limited by laws
      relating to the availability of specific performance, injunctive relief or
      other
      equitable remedies and (iii) insofar as indemnification and contribution
      provisions may be limited by applicable law.

     

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

     

    
      
        
        

      

      
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    (e)  Filings,
      Consents and Approvals.
      The
      Company is not required to obtain any consent, waiver, authorization or order
      of, give any notice to, or make any filing or registration with, any court
      or
      other federal, state, local or other governmental authority or other Person
      in
      connection with the execution, delivery and performance by the Company of the
      Transaction Documents, other than (i) filings required pursuant to Section
      4.4
      of this Agreement, (ii) the filing with the Commission of the Registration
      Statement, (iii) application(s) to each applicable Trading Market for the
      listing of the Securities for trading thereon in the time and manner required
      thereby and (iv) the filing of Form D with the Commission and such filings
      as
      are required to be made under applicable state securities laws (collectively,
      the “Required
      Approvals”).

     

    (f)  Issuance
      of the Securities.
      The
      Securities are duly authorized and, when issued and paid for in accordance
      with
      the applicable Transaction Documents, will be duly and validly issued, fully
      paid and nonassessable, free and clear of all Liens imposed by the Company
      other
      than restrictions on transfer provided for in the Transaction Documents. The
      Warrant Shares, when issued in accordance with the terms of the Transaction
      Documents, will be validly issued, fully paid and nonassessable, free and clear
      of all Liens imposed by the Company. The Company has reserved from its duly
      authorized capital stock the maximum number of shares of Common Stock issuable
      pursuant to this Agreement and the Warrants.

     

    (g)  Capitalization.
      The
      capitalization of the Company is as set forth on Schedule
      3.1(g),
      which
Schedule
      3.1(g)
      shall
      also include the number of shares of Common Stock owned beneficially, and of
      record, by Affiliates of the Company as of the date hereof. The Company has
      not
      issued any capital stock since its most
      recently filed periodic report under the Exchange Act, other
      than pursuant to the exercise of employee stock options under the Company’s
      stock option plans, the issuance of shares of Common Stock to employees pursuant
      to the Company’s employee stock purchase plan and pursuant to the conversion or
      exercise of Common Stock Equivalents outstanding as of the date of the most
      recently filed periodic report under the Exchange Act. No Person has any right
      of first refusal, preemptive right, right of participation, or any similar
      right
      to participate in the transactions contemplated by the Transaction Documents.
      Except as a result of the purchase and sale of the Securities, there are no
      outstanding options, warrants, scrip rights to subscribe to, calls or
      commitments of any character whatsoever relating to, or securities, rights
      or
      obligations convertible into or exercisable or exchangeable for, or giving
      any
      Person any right to subscribe for or acquire, any shares of Common Stock, or
      contracts, commitments, understandings or arrangements by which the Company
      or
      any Subsidiary is or may become bound to issue additional shares of Common
      Stock
      or Common Stock Equivalents. The issuance and sale of the Securities will not
      obligate the Company to issue shares of Common Stock or other securities to
      any
      Person (other than the Purchasers) and will not result in a right of any holder
      of Company securities to adjust the exercise, conversion, exchange or reset
      price under any of such securities. All of the outstanding shares of capital
      stock of the Company are validly issued, fully paid and nonassessable, have
      been
      issued in compliance with all federal and state securities laws, and none of
      such outstanding shares was issued in violation of any preemptive rights or
      similar rights to subscribe for or purchase securities. No further approval
      or
      authorization of any stockholder, the Board of Directors of the Company or
      others is required for the issuance and sale of the Securities. There are no
      stockholders agreements, voting agreements or other similar agreements with
      respect to the Company’s capital stock to which the Company is a party or, to
      the knowledge of the Company, between or among any of the Company’s
      stockholders.

     

    
      
        
        

      

      
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    (h)  SEC
      Reports; Financial Statements.
      The
      Company has filed all reports, schedules, forms, statements and other documents
      required to be filed by the Company under the Securities Act and the Exchange
      Act, including pursuant to Section 13(a) or 15(d) thereof, for the two years
      preceding the date hereof (or such shorter period as the Company was required
      by
      law or regulation to file such material) (the foregoing materials, including
      the
      exhibits thereto and documents incorporated by reference therein, being
      collectively referred to herein as the “SEC
      Reports”)
      on a
      timely basis or has received a valid extension of such time of filing and has
      filed any such SEC Reports prior to the expiration of any such extension. As
      of
      their respective dates, the SEC Reports complied in all material respects with
      the requirements of the Securities Act and the Exchange Act, as applicable,
      and
      none of the SEC Reports, when filed, contained any untrue statement of a
      material fact or omitted to state a material fact required to be stated therein
      or necessary in order to make the statements therein, in the light of the
      circumstances under which they were made, not misleading. The financial
      statements of the Company included in the SEC Reports comply in all material
      respects with applicable accounting requirements and the rules and regulations
      of the Commission with respect thereto as in effect at the time of filing.
      Such
      financial statements have been prepared in accordance with United States
      generally accepted accounting principles applied on a consistent basis during
      the periods involved (“GAAP”),
      except as may be otherwise specified in such financial statements or the notes
      thereto and except that unaudited financial statements may not contain all
      footnotes required by GAAP, and fairly present in all material respects the
      financial position of the Company and its consolidated subsidiaries as of and
      for the dates thereof and the results of operations and cash flows for the
      periods then ended, subject, in the case of unaudited statements, to normal,
      immaterial, year-end audit adjustments.

     

    (i)  Material
      Changes; Undisclosed Events, Liabilities or Developments.
      Since
      the date of the latest audited financial statements included within the SEC
      Reports, except as specifically disclosed in a subsequent SEC Report filed
      prior
      to the date hereof, (i) there has been no event, occurrence or development
      that
      has had or that could reasonably be expected to result in a Material Adverse
      Effect, (ii) the Company has not incurred any liabilities (contingent or
      otherwise) other than (A) trade payables and accrued expenses incurred in the
      ordinary course of business consistent with past practice and (B) liabilities
      not required to be reflected in the Company’s financial statements pursuant to
      GAAP or disclosed in filings made with the Commission, (iii) the Company has
      not
      altered its method of accounting, (iv) the Company has not declared or made
      any
      dividend or distribution of cash or other property to its stockholders or
      purchased, redeemed or made any agreements to purchase or redeem any shares
      of
      its capital stock and (v) the Company has not issued any equity securities
      to
      any officer, director or Affiliate, except pursuant to existing Company stock
      option plans. The Company does not have pending before the Commission any
      request for confidential treatment of information. Except for the issuance
      of
      the Securities contemplated by this Agreement or as set forth on Schedule
      3.1(i),
      no
      event, liability or development has occurred or exists with respect to the
      Company or its Subsidiaries or their respective business, properties, operations
      or financial condition, that would be required to be disclosed by the Company
      under applicable securities laws at the time this representation is made that
      has not been publicly disclosed at least 1 Trading Day prior to the date that
      this representation is made.

     

    
      
        
        

      

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

     

    (k)  Labor
      Relations.
      No
      material labor dispute exists or, to the knowledge of the Company, is imminent
      with respect to any of the employees of the Company which could reasonably
      be
      expected to result in a Material Adverse Effect. None of the Company’s or its
      Subsidiaries’ employees is a member of a union that relates to such employee’s
      relationship with the Company, and neither the Company or any of its
      Subsidiaries is a party to a collective bargaining agreement, and the Company
      and its Subsidiaries believe that their relationships with their employees
      are
      good. No executive officer, to the knowledge of the Company, is, or is now
      expected to be, in violation of any material term of any employment contract,
      confidentiality, disclosure or proprietary information agreement or
      non-competition agreement, or any other contract or agreement or any restrictive
      covenant, and the continued employment of each such executive officer does
      not
      subject the Company or any of its Subsidiaries to any liability with respect
      to
      any of the foregoing matters. The Company and its Subsidiaries are in compliance
      with all U.S. federal, state, local and foreign laws and regulations relating
      to
      employment and employment practices, terms and conditions of employment and
      wages and hours, except where the failure to be in compliance could not,
      individually or in the aggregate, reasonably be expected to have a Material
      Adverse Effect.

     

    
      
        
        

      

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

     

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

     

    (n)  Title
      to Assets.
      The
      Company and the Subsidiaries have good and marketable title in fee simple to
      all
      real property owned by them that is material to the business of the Company
      and
      the Subsidiaries and good and marketable title in all personal property owned
      by
      them that is material to the business of the Company and the Subsidiaries,
      in
      each case free and clear of all Liens, except for Liens as do not materially
      affect the value of such property and do not materially interfere with the
      use
      made and proposed to be made of such property by the Company and the
      Subsidiaries and Liens for the payment of federal, state or other taxes, the
      payment of which is neither delinquent nor subject to penalties. Any real
      property and facilities held under lease by the Company and the Subsidiaries
      are
      held by them under valid, subsisting and enforceable leases with which the
      Company and the Subsidiaries are in compliance.

     

    (o)  Patents
      and Trademarks.
      The
      Company and the Subsidiaries have, or have rights to use, all patents, patent
      applications, trademarks, trademark applications, service marks, trade names,
      trade secrets, inventions, copyrights, licenses and other intellectual property
      rights and similar rights necessary or material for use in connection with
      their
      respective businesses as described in the SEC Reports and which the failure
      to
      so have could have a Material Adverse Effect (collectively, the “Intellectual
      Property Rights”).
      Neither the Company nor any Subsidiary has received a notice (written or
      otherwise) that the Intellectual Property Rights used by the Company or any
      Subsidiary violates or infringes upon the rights of any Person. To the knowledge
      of the Company, all such Intellectual Property Rights are enforceable and there
      is no existing infringement by another Person of any of the Intellectual
      Property Rights. The Company and its Subsidiaries have taken reasonable security
      measures to protect the secrecy, confidentiality and value of all of their
      intellectual properties, except where failure to do so could not, individually
      or in the aggregate, reasonably be expected to have a Material Adverse
      Effect.

     

    
      
        
        

      

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

     

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

     

    (r)  Sarbanes-Oxley;
      Internal Accounting Controls.
      The
      Company is in material compliance with all provisions of the Sarbanes-Oxley
      Act
      of 2002 which are applicable to it as of the Closing Date. The
      Company and the Subsidiaries maintain a system of internal accounting controls
      sufficient to provide reasonable assurance that (i) transactions are executed
      in
      accordance with management’s general or specific authorizations, (ii)
      transactions are recorded as necessary to permit preparation of financial
      statements in conformity with GAAP and to maintain asset accountability, (iii)
      access to assets is permitted only in accordance with management’s general or
      specific authorization, and (iv) the recorded accountability for assets is
      compared with the existing assets at reasonable intervals and appropriate action
      is taken with respect to any differences. The Company has established disclosure
      controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
      15d-15(e)) for the Company and designed such disclosure controls and procedures
      to ensure that information required to be disclosed by the Company in the
      reports it files or submits under the Exchange Act is recorded, processed,
      summarized and reported, within the time periods specified in the Commission’s
      rules and forms. The Company’s certifying officers have evaluated the
      effectiveness of the Company’s disclosure controls and procedures as of the end
      of the period covered by the Company’s most recently filed periodic report under
      the Exchange Act (such date, the “Evaluation
      Date”).
      The Company presented in its most recently filed periodic report under the
      Exchange Act the conclusions of the certifying officers about the effectiveness
      of the disclosure controls and procedures based on their evaluations as of
      the
      Evaluation Date. Since the Evaluation Date, there have been no changes in the
      Company’s internal control over financial reporting (as such term is defined in
      the Exchange Act) that has materially affected, or is reasonably likely to
      materially affect, the Company’s internal control over financial
      reporting.

     

    
      
        
        

      

      
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    (s)  Certain
      Fees.
      No
      brokerage or finder’s fees or commissions are or will be payable by the Company
      to any broker, financial advisor or consultant, finder, placement agent,
      investment banker, bank or other Person with respect to the transactions
      contemplated by the Transaction Documents. The Purchasers shall have no
      obligation with respect to any fees or with respect to any claims made by or
      on
      behalf of other Persons for fees of a type contemplated in this Section that
      may
      be due in connection with the transactions contemplated by the Transaction
      Documents.

     

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

     

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

     

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

     

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

     

    (x)  Application
      of Takeover Protections.
      The
      Company and its board of directors have taken all necessary action, if any,
      in
      order to render inapplicable any control share acquisition, business
      combination, poison pill (including any distribution under a rights agreement)
      or other similar anti-takeover provision under the Company’s certificate of
      incorporation (or similar charter documents) or the laws of its state of
      incorporation that is or could become applicable to the Purchasers as a result
      of the Purchasers and the Company fulfilling their obligations or exercising
      their rights under the Transaction Documents, including without limitation
      as a
      result of the Company’s issuance of the Securities and the Purchasers’ ownership
      of the Securities.

     

    
      
        
        

      

      
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    (y)  Disclosure.
      Except
      with respect to the material terms and conditions of the transactions
      contemplated by the Transaction Documents, the Company confirms that neither
      it
      nor any other Person acting on its behalf has provided any of the Purchasers
      or
      their agents or counsel with any information that it believes constitutes or
      might constitute material, non-public information. The Company understands
      and
      confirms that the Purchasers will rely on the foregoing representation in
      effecting transactions in securities of the Company. All disclosure furnished
      by
      or on behalf of the Company to the Purchasers regarding the Company, its
      business and the transactions contemplated hereby, including the Disclosure
      Schedules to this Agreement, is true and correct and does not contain any untrue
      statement of a material fact or omit to state any material fact necessary in
      order to make the statements made therein, in light of the circumstances under
      which they were made, not misleading. The press releases disseminated by the
      Company during the twelve months preceding the date of this Agreement taken
      as a
      whole do not contain any untrue statement of a material fact or omit to state
      a
      material fact required to be stated therein or necessary in order to make the
      statements, in light of the circumstances under which they were made and when
      made, not misleading. The Company acknowledges and agrees that no Purchaser
      makes or has made any representations or warranties with respect to the
      transactions contemplated hereby other than those specifically set forth in
      Section 3.2 hereof.

     

    (z)  No
      Integrated Offering.
      Assuming
      the accuracy of the Purchasers’ representations and warranties set forth in
      Section 3.2, neither the Company, nor any of its Affiliates, nor any Person
      acting on its or their behalf has, directly or indirectly, made any offers
      or
      sales of any security or solicited any offers to buy any security, under
      circumstances that would cause this offering of the Securities to be integrated
      with prior offerings by the Company for purposes of the Securities Act or any
      applicable shareholder approval provisions of any Trading Market on which any
      of
      the securities of the Company are listed or designated. 

     

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

     

    
      
        
        

      

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

     

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

     

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

     

    (ee)   Accountants.
      To the
      knowledge and belief of the Company, Moores Rowland Mazars, the Company’s
      accounting firm (i) is a registered public accounting firm as required by the
      Exchange Act and (ii) shall express its opinion with respect to the financial
      statements to be included in the Company’s Annual Report on Form 10-KSB for the
      year ended December 31, 2006.

     

    
      
        
        

      

      
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    (ee)  No
      Disagreements with Accountants and Lawyers.There
      are
      no disagreements of any kind presently existing, or reasonably anticipated
      by
      the Company to arise, between the Company and the accountants and lawyers
      formerly or presently employed by the Company and the Company is current with
      respect to any fees owed to its accountants and lawyers. 

     

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

     

    (gg)  Acknowledgement
      Regarding Purchaser’s Trading Activity.
      Anything in this Agreement or elsewhere herein to the contrary notwithstanding
      (except for Sections 3.2(f) and 4.15 hereof), it is understood and acknowledged
      by the Company (i) that none of the Purchasers have been asked to agree, nor
      has
      any Purchaser agreed, to desist from purchasing or selling, long and/or short,
      securities of the Company, or “derivative” securities based on securities issued
      by the Company or to hold the Securities for any specified term; (ii) that
      past
      or future open market or other transactions by any Purchaser, including Short
      Sales, and specifically including, without limitation, Short Sales or
“derivative” transactions, before or after the closing of this or future private
      placement transactions, may negatively impact the market price of the Company’s
      publicly-traded securities; (iii) that any Purchaser, and counter-parties in
      “derivative” transactions to which any such Purchaser is a party, directly or
      indirectly, presently may have a “short” position in the Common Stock, and (iv)
      that each Purchaser shall not be deemed to have any affiliation with or control
      over any arm’s length counter-party in any “derivative” transaction.
The
      Company further understands and acknowledges that (a) one or more Purchasers
      may
      engage in hedging activities at various times during the period that the
      Securities are outstanding, including, without limitation, during the periods
      that the value of the Warrant Shares deliverable with respect to Securities
      are
      being determined and (b) such hedging activities (if any) could reduce the
      value
      of the existing stockholders' equity interests in the Company at and after
      the
      time that the hedging activities are being conducted.  The Company
      acknowledges that such aforementioned hedging activities do not constitute
      a
      breach of any of the Transaction Documents.

     

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

     

    
      
        
        

      

      
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    (ii)  Form
      S-3 Eligibility.
      The
      Company is eligible to register the resale of the Securities for resale by
      the
      Purchaser on Form S-3 promulgated under the Securities Act.

     

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

     

    (a)  Organization;
      Authority.
      Such
      Purchaser is an entity duly organized, validly existing and in good standing
      under the laws of the jurisdiction of its organization with full right,
      corporate or partnership power and authority to enter into and to consummate
      the
      transactions contemplated by the Transaction Documents and otherwise to carry
      out its obligations hereunder and thereunder. The execution, delivery and
      performance by such Purchaser of the transactions contemplated by this Agreement
      have been duly authorized by all necessary corporate or similar action on the
      part of such Purchaser. Each Transaction Document to which it is a party has
      been duly executed by such Purchaser, and when delivered by such Purchaser
      in
      accordance with the terms hereof, will constitute the valid and legally binding
      obligation of such Purchaser, enforceable against it in accordance with its
      terms, except (i) as limited by general equitable principles and applicable
      bankruptcy, insolvency, reorganization, moratorium and other laws of general
      application affecting enforcement of creditors’ rights generally, (ii) as
      limited by laws relating to the availability of specific performance, injunctive
      relief or other equitable remedies and (iii) insofar as indemnification and
      contribution provisions may be limited by applicable law.

     

    (b)  Own
      Account.
      Such
      Purchaser understands that the Securities are “restricted securities” and have
      not been registered under the Securities Act or any applicable state securities
      law and is acquiring the Securities as principal for its own account and not
      with a view to or for distributing or reselling such Securities or any part
      thereof in violation of the Securities Act or any applicable state securities
      law, has no present intention of distributing any of such Securities in
      violation of the Securities Act or any applicable state securities law and
      has
      no direct or indirect arrangement or understandings with any other persons
      to
      distribute or regarding the distribution of such Securities (this representation
      and warranty not limiting such Purchaser’s right to sell the Securities pursuant
      to the Registration Statement or otherwise in compliance with applicable federal
      and state securities laws) in violation of the Securities Act or any applicable
      state securities law. Such Purchaser is acquiring the Securities hereunder
      in
      the ordinary course of its business.

     

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

     

    
      
        
        

      

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

     

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

     

    (f)  Short
      Sales and Confidentiality Prior To The Date Hereof.
      Other than the transaction contemplated hereunder, such Purchaser has not,
      nor
      has any Person acting on behalf of or pursuant to any understanding with such
      Purchaser, directly or indirectly executed any purchase or sale, including
      Short
      Sales, in the securities of the Company during the period commencing
      from
      the time
      that such Purchaser first received a term sheet (written or oral) from the
      Company or any other Person setting forth the material terms of the transactions
      contemplated hereunder until the date hereof (“Discussion
      Time”).
      Notwithstanding the foregoing, in the case of a Purchaser that is a
      multi-managed investment vehicle whereby separate portfolio managers manage
      separate portions of such Purchaser's assets and the portfolio managers have
      no
      direct knowledge of the investment decisions made by the portfolio managers
      managing other portions of such Purchaser's assets, the representation set
      forth
      above shall only apply with respect to the portion of assets managed by the
      portfolio manager that made the investment decision to purchase the Securities
      covered by this Agreement. Other than to other Persons party to this Agreement,
      such Purchaser has maintained the confidentiality of all disclosures made to
      it
      in connection with this transaction (including the existence and terms of this
      transaction).

     

    ARTICLE
      IV.

    OTHER
      AGREEMENTS OF THE PARTIES

     

    4.1    Transfer
      Restrictions. 

     

    (a)  The
      Securities may only be disposed of in compliance with state and federal
      securities laws. In connection with any transfer of Securities other than
      pursuant to an effective registration statement or Rule 144, to the Company
      or
      to an Affiliate of a Purchaser or in connection with a pledge as contemplated
      in
      Section 4.1(b), the Company may require the transferor thereof to provide to
      the
      Company an opinion of counsel selected by the transferor and reasonably
      acceptable to the Company, the form and substance of which opinion shall be
      reasonably satisfactory to the Company, to the effect that such transfer does
      not require registration of such transferred Securities under the Securities
      Act. As a condition of transfer, any such transferee shall agree in writing
      to
      be bound by the terms of this Agreement and shall have the rights of a Purchaser
      under this Agreement and the Registration Rights Agreement.

     

    
      
        
        

      

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

     

    THIS
      SECURITY HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION
      OR
      THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
      REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
      ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
      EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
      AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
      REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
      SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR
      TO
      SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
      COMPANY. THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
      ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL
      INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE
      SECURITIES ACT OR OTHER LOAN SECURED BY SUCH SECURITIES.

     

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

     

    
      
        
        

      

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

    

    (d)  In
      addition to such Purchaser’s other available remedies, the Company shall pay to
      a Purchaser, in cash, as partial liquidated damages and not as a penalty, for
      each $1,000 of Shares or Warrant Shares (based on the VWAP of the Common Stock
      on the date such Securities are submitted to the Transfer Agent) delivered
      for
      removal of the restrictive legend and subject to Section 4.1(c), $10 per Trading
      Day (increasing to $20 per Trading Day five (5) Trading Days after such damages
      have begun to accrue) for each Trading Day after the Legend Removal Date until
      such certificate is delivered without a legend. Nothing herein shall limit
      such
      Purchaser’s right to pursue actual damages for the Company’s failure to deliver
      certificates representing any Securities as required by the Transaction
      Documents, and such Purchaser shall have the right to pursue all remedies
      available to it at law or in equity including, without limitation, a decree
      of
      specific performance and/or injunctive relief.

     

    (e)  Each
      Purchaser, severally and not jointly with the other Purchasers, agrees that
      the
      removal of the restrictive legend from certificates representing Securities
      as
      set forth in this Section 4.1 is predicated upon the Company’s reliance that the
      Purchaser will sell any Securities pursuant to either the registration
      requirements of the Securities Act, including any applicable prospectus delivery
      requirements, or an exemption therefrom, and that if Securities are sold
      pursuant to a Registration Statement, they will be sold in compliance with
      the
      plan of distribution set forth therein.

     

    4.2    
      Furnishing of Information.
      As long
      as any Purchaser owns Securities, the Company covenants to timely file (or
      obtain extensions in respect thereof and file within the applicable grace
      period) all reports required to be filed by the Company after the date hereof
      pursuant to the Exchange Act. As long as any Purchaser owns Securities, if
      the
      Company is not required to file reports pursuant to the Exchange Act, it will
      prepare and furnish to the Purchasers and make publicly available in accordance
      with Rule 144(c) such information as is required for the Purchasers to sell
      the
      Securities under Rule 144. The Company further covenants that it will take
      such
      further action as any holder of Securities may reasonably request, to the extent
      required from time to time to enable such Person to sell such Securities without
      registration under the Securities Act within the requirements of the exemption
      provided by Rule 144.

     

    
      
        
        

      

      
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    4.3    
      Integration.
      The
      Company shall not sell, offer for sale or solicit offers to buy or otherwise
      negotiate in respect of any security (as defined in Section 2 of the Securities
      Act) that would be integrated with the offer or sale of the Securities in a
      manner that would require the registration under the Securities Act of the
      sale
      of the Securities to the Purchasers or that would be integrated with the offer
      or sale of the Securities for purposes of the rules and regulations of any
      Trading Market such that it would require shareholder approval prior to the
      closing of such other transaction unless shareholder approval is obtained before
      the closing of such subsequent transaction.

     

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

     

    4.5  Shareholder
      Rights Plan. No claim will be made or enforced by the Company or, with the
      consent of the Company, any other Person, that any Purchaser is an “Acquiring
      Person” under any control share acquisition, business combination, poison pill
      (including any distribution under a rights agreement) or similar anti-takeover
      plan or arrangement in effect or hereafter adopted by the Company, or that
      any
      Purchaser could be deemed to trigger the provisions of any such plan or
      arrangement, by virtue of receiving Securities under the Transaction Documents
      or under any other agreement between the Company and the
      Purchasers.

     

    
      
        
        

      

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

     

    4.7  Use
      of
      Proceeds. Except as set forth on Schedule 4.7 attached hereto, the Company
      shall use the net proceeds from the sale of the Securities hereunder for working
      capital purposes and shall not use such proceeds for the satisfaction of any
      portion of the Company’s debt (other than payment of trade payables in the
      ordinary course of the Company’s business and prior practices), the redemption
      of any Common Stock or Common Stock Equivalents or the settlement of any
      outstanding litigation.

     

    4.8  Reimbursement.
      If any Purchaser becomes involved in any capacity in any Proceeding by or
      against any Person who is a stockholder of the Company (except as a result
      of
      sales, pledges, margin sales and similar transactions by such Purchaser to
      or
      with any other stockholder), solely as a result of such Purchaser’s acquisition
      of the Securities under this Agreement, the Company will reimburse such
      Purchaser for its reasonable legal and other expenses (including the cost of
      any
      investigation preparation and travel in connection therewith) incurred in
      connection therewith, as such expenses are incurred. The reimbursement
      obligations of the Company under this paragraph shall be in addition to any
      liability which the Company may otherwise have, shall extend upon the same
      terms
      and conditions to any Affiliates of the Purchasers who are actually named in
      such action, proceeding or investigation, and partners, directors, agents,
      employees and controlling persons (if any), as the case may be, of the
      Purchasers and any such Affiliate, and shall be binding upon and inure to the
      benefit of any successors, assigns, heirs and personal representatives of the
      Company, the Purchasers and any such Affiliate and any such Person. The Company
      also agrees that neither the Purchasers nor any such Affiliates, partners,
      directors, agents, employees or controlling persons shall have any liability
      to
      the Company or any Person asserting claims on behalf of or in right of the
      Company solely as a result of acquiring the Securities under this Agreement,
      except if such claim arises primarily from a breach of such Purchaser’s
      representations, warranties or covenants under the Transaction Documents or
      any
      agreements or understandings such Purchaser may have with any such stockholder
      or any violations by the Purchaser of state or federal securities laws or any
      conduct by such Purchaser which constitutes fraud, gross negligence, willful
      misconduct or malfeasance.

     

    4.9  Indemnification
      of Purchasers. Subject to the provisions of this Section 4.9, the Company
      will indemnify and hold each Purchaser and its directors, officers,
      shareholders, members, partners, employees and agents (and any other Persons
      with a functionally equivalent role of a Person holding such titles
      notwithstanding a lack of such title or any other title), each Person who
      controls such Purchaser (within the meaning of Section 15 of the Securities
      Act
      and Section 20 of the Exchange Act), and the directors, officers, shareholders,
      agents, members, partners or employees (and any other Persons with a
      functionally equivalent role of a Person holding such titles notwithstanding
      a
      lack of such title or any other title) of such controlling persons (each, a
      “Purchaser Party”) harmless from any and all losses, liabilities, obligations,
      claims, contingencies, damages, costs and expenses, including all judgments,
      amounts paid in settlements, court costs and reasonable attorneys’ fees and
      costs of investigation that any such Purchaser Party may suffer or incur as
      a
      result of or relating to (a) any breach of any of the representations,
      warranties, covenants or agreements made by the Company in this Agreement or
      in
      the other Transaction Documents or (b) any action instituted against a
      Purchaser, or any of them or their respective Affiliates, by any stockholder
      of
      the Company who is not an Affiliate of such Purchaser, with respect to any
      of
      the transactions contemplated by the Transaction Documents (unless such action
      is based upon a breach of such Purchaser’s representations, warranties or
      covenants under the Transaction Documents or any agreements or understandings
      such Purchaser may have with any such stockholder or any violations by the
      Purchaser of state or federal securities laws or any conduct by such Purchaser
      which constitutes fraud, gross negligence, willful misconduct or malfeasance).
      If any action shall be brought against any Purchaser Party in respect of which
      indemnity may be sought pursuant to this Agreement, such Purchaser Party shall
      promptly notify the Company in writing, and the Company shall have the right
      to
      assume the defense thereof with counsel of its own choosing reasonably
      acceptable to the Purchaser Party. Any Purchaser Party shall have the right
      to
      employ separate counsel in any such action and participate in the defense
      thereof, but the fees and expenses of such counsel shall be at the expense
      of
      such Purchaser Party except to the extent that (i) the employment thereof has
      been specifically authorized by the Company in writing, (ii) the Company has
      failed after a reasonable period of time to assume such defense and to employ
      counsel or (iii) in such action there is, in the reasonable opinion of such
      separate counsel, a material conflict on any material issue between the position
      of the Company and the position of such Purchaser Party, in which case the
      Company shall be responsible for the reasonable fees and expenses of no more
      than one such separate counsel. The Company will not be liable to any Purchaser
      Party under this Agreement (i) for any settlement by a Purchaser Party effected
      without the Company’s prior written consent, which shall not be unreasonably
      withheld or delayed; or (ii) to the extent, but only to the extent that a loss,
      claim, damage or liability is attributable to any Purchaser Party’s breach of
      any of the representations, warranties, covenants or agreements made by such
      Purchaser Party in this Agreement or in the other Transaction
      Documents.

     

    
      
        
        

      

      
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    4.10  Reservation
      of Common Stock.
      As of
      the date hereof, the Company has reserved and the Company shall continue to
      reserve and keep available at all times, free of preemptive rights, a sufficient
      number of shares of Common Stock for the purpose of enabling the Company to
      issue Shares pursuant to this Agreement and Warrant Shares pursuant to any
      exercise of the Warrants. 

     

    4.11     
      Listing of Common Stock. The
      Company hereby agrees to use best efforts to maintain the listing of the Common
      Stock on a Trading Market, and as soon as reasonably practicable following
      the
      Closing (but not later than the earlier of the Effective Date and the first
      anniversary of the Closing Date) to list all of the Shares and Warrant Shares
      on
      such Trading Market. The Company further agrees, if the Company applies to
      have
      the Common Stock traded on any other Trading Market, it will include in such
      application all of the Shares and Warrant Shares, and will take such other
      action as is necessary to cause all of the Shares and Warrant Shares to be
      listed on such other Trading Market as promptly as possible. The Company will
      take all action reasonably necessary to continue the listing and trading of
      its
      Common Stock on a Trading Market and will comply in all respects with the
      Company’s reporting, filing and other obligations under the bylaws or rules of
      the Trading Market. In addition, the Company shall hold a special meeting of
      shareholders (which may also be at the annual meeting of shareholders) at the
      earliest practical date after the date the number of shares of Common Stock
      issuable pursuant to this Agreement on a fully exercised basis (ignoring for
      such purposes any conversion or exercise limitations therein) exceeds 15% of
      the
      issued and outstanding shares of Common Stock on the Closing Date for the
      purpose of obtaining Shareholder Approval, with the recommendation of the
      Company’s Board of Directors that such proposal be approved, and the Company
      shall solicit proxies from its shareholders in connection therewith in the
      same
      manner as all other management proposals in such proxy statement and all
      management-appointed proxyholders shall vote their proxies in favor of such
      proposal. If the Company does not obtain Shareholder Approval at the first
      meeting, the Company shall call a meeting every four months thereafter to seek
      Shareholder Approval until the earlier of the date Shareholder Approval is
      obtained or the Warrants are no longer outstanding.

     

    
      
        
        

      

      
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    4.12  Equal
      Treatment of Purchasers.
      No
      consideration shall be offered or paid to any Person to amend or consent to
      a
      waiver or modification of any provision of any of the Transaction Documents
      unless the same consideration is also offered to all of the parties to the
      Transaction Documents. For clarification purposes, this provision constitutes
      a
      separate right granted to each Purchaser by the Company and negotiated
      separately by each Purchaser, and is intended for the Company to treat the
      Purchasers as a class and shall not in any way be construed as the Purchasers
      acting in concert or as a group with respect to the purchase, disposition or
      voting of Securities or otherwise.

     

    4.13  Participation
      in Future Financing. 

     

    (a)  From
      the
      date hereof until the date that is the 12 month anniversary of the Effective
      Date, upon any issuance by the Company or any of its Subsidiaries of Common
      Stock or Common Stock Equivalents for cash consideration (a “Subsequent
      Financing”),
      each
      Purchaser shall have the right to participate in up to an amount of the
      Subsequent Financing equal to 25% of the Subsequent Financing (the “Participation
      Maximum”)
      on the
      same terms, conditions and price provided for in the Subsequent
      Financing. 

     

    (b)  At
      least
      5 Trading Days prior to the closing of the Subsequent Financing, the Company
      shall deliver to each Purchaser a written notice of its intention to effect
      a
      Subsequent Financing (“Pre-Notice”),
      which
      Pre-Notice shall ask such Purchaser if it wants to review the details of such
      financing (such additional notice, a “Subsequent
      Financing Notice”). 
      Upon the request of a Purchaser, and only upon a request by such Purchaser,
      for
      a Subsequent Financing Notice, the Company shall promptly, but no later than
      1
      Trading Day after such request, deliver a Subsequent Financing Notice to such
      Purchaser.  The Subsequent Financing Notice shall describe in reasonable
      detail the proposed terms of such Subsequent Financing, the amount of proceeds
      intended to be raised thereunder and the Person or Persons through or with
      whom
      such Subsequent Financing is proposed to be effected and shall include a term
      sheet or similar document relating thereto as an
      attachment.   

     

    
      
        
        

      

      
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    (c)  Any
      Purchaser desiring to participate in such Subsequent Financing must provide
      written notice to the Company by not later than 5:30 p.m. (New York City time)
      on the 5th
      Trading
      Day after all of the Purchasers have received the Pre-Notice that the Purchaser
      is willing to participate in the Subsequent Financing, the amount of the
      Purchaser’s participation, and that the Purchaser has such funds ready, willing,
      and available for investment on the terms set forth in the Subsequent Financing
      Notice. If the Company receives no notice from a Purchaser as of such
      5th
      Trading
      Day, such Purchaser shall be deemed to have notified the Company that it does
      not elect to participate.  

     

    (d)  If
      by
      5:30 p.m. (New York City time) on the 5th
      Trading
      Day after all of the Purchasers have received the Pre-Notice, notifications
      by
      the Purchasers of their willingness to participate in the Subsequent Financing
      (or to cause their designees to participate) is, in the aggregate, less than
      the
      total amount of the Participation Maximum of such Subsequent Financing, then
      the
      Company may effect the remaining portion of such Subsequent Financing (including
      any such unused portion of the Participation Maximum) on the terms and with
      the
      Persons set forth in the Subsequent Financing Notice.  

     

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

     

    (f)  The
      Company must provide the Purchasers with a second Subsequent Financing Notice,
      and the Purchasers will again have the right of participation set forth above
      in
      this Section 4.13, if the Subsequent Financing subject to the initial Subsequent
      Financing Notice is not consummated for any reason on the terms set forth in
      such Subsequent Financing Notice within 60 Trading Days after the date of the
      initial Subsequent Financing Notice.

     

    (g)  Notwithstanding
      the foregoing, this Section 4.13 shall not apply in respect of (i)
      an
      Exempt
      Issuance
      or (ii)
      an underwritten public offering of Common Stock.

     

    4.14  Subsequent
      Equity Sales.
      

     

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

     

    
      
        
        

      

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

     

    (c)  Unless
      Shareholder Approval has been obtained and deemed effective, neither the Company
      nor any Subsidiary shall make any issuance whatsoever of Common Stock or Common
      Stock Equivalents which would cause any adjustment of the exercise price of
      the
      Warrants to the extent the holders of the Warrants would not be permitted,
      pursuant to Section 2(d)(ii) of the Warrants, to exercise their respective
      Warrants in full, ignoring for such purposes the exercise limitations therein.
      Any Purchaser shall be entitled to obtain injunctive relief against the Company
      to preclude any such issuance, which remedy shall be in addition to any right
      to
      collect damages.

     

    (d)  Notwithstanding
      the foregoing, this Section 4.14 shall not apply in respect of an Exempt
      Issuance, except that no Variable Rate Transaction shall be an Exempt
      Issuance.

     

    4.15  Short
      Sales
      and Confidentiality After The Date Hereof. Each
      Purchaser severally and not jointly with the other Purchasers covenants that
      neither it nor any Affiliate acting on its behalf or pursuant to any
      understanding with it will execute any Short Sales during the period commencing
      at the Discussion Time and ending at the time that the transactions contemplated
      by this Agreement are first publicly announced as described
      in Section 4.4. Each
      Purchaser, severally and not jointly with the other Purchasers, covenants that
      until such time as the transactions contemplated by this Agreement are publicly
      disclosed by the Company as described in Section 4.4, such Purchaser will
      maintain the confidentiality of the existence and terms of this transaction.
      Each Purchaser understands and acknowledges, severally and not jointly with
      any
      other Purchaser, that the Commission currently takes the position that coverage
      of short sales of shares of the Common Stock “against the box” prior to the
      Effective Date of the Registration Statement with the Securities is a violation
      of Section 5 of the Securities Act, as set forth in Item 65, Section A, of
      the
      Manual of Publicly Available Telephone Interpretations, dated July 1997,
      compiled by the Office of Chief Counsel, Division of Corporation Finance.
Notwithstanding
      the foregoing, no Purchaser makes any representation, warranty or covenant
      hereby that it will not engage in Short Sales in the securities of the Company
      after the time that the transactions contemplated by this Agreement are first
      publicly announced as described in Section 4.4. Notwithstanding
      the foregoing, in the case of a Purchaser that is a multi-managed investment
      vehicle whereby separate portfolio managers manage separate portions of such
      Purchaser's assets and the portfolio managers have no direct knowledge of the
      investment decisions made by the portfolio managers managing other portions
      of
      such Purchaser's assets, the covenant set forth above shall only apply with
      respect to the portion of assets managed by the portfolio manager that made
      the
      investment decision to purchase the Securities covered by this
      Agreement.

     

    
      
        
        

      

      
        27

        
          

        

      

      
        
        

      

    

     

    4.16  Delivery
      of Securities After Closing. The Company shall deliver, or cause to be
      delivered, the respective Securities purchased by each Purchaser to such
      Purchaser within 3 Trading Days of the Closing Date.

     

    4.17  Form
      D; Blue Sky Filings. The Company agrees to timely file a Form D with respect
      to the Securities as required under Regulation D and to provide a copy thereof,
      promptly upon request of any Purchaser. The Company shall take such action
      as
      the Company shall reasonably determine is necessary in order to obtain an
      exemption for, or to qualify the Securities for, sale to the Purchasers at
      the
      Closing under applicable securities or “Blue Sky” laws of the states of the
      United States, and shall provide evidence of such actions promptly upon request
      of any Purchaser.

     

    4.18  Capital
      Changes. Until the one year anniversary of the Effective Date, the Company
      shall not undertake a reverse or forward stock split or reclassification of
      the
      Common Stock without the prior written consent of the Purchasers holding a
      majority in interest of the Shares.

     

    ARTICLE
      V.

    MISCELLANEOUS

     

    5.1  Termination. 
      This Agreement may be terminated by any Purchaser, as to such Purchaser’s
      obligations hereunder only and without any effect whatsoever on the obligations
      between the Company and the other Purchasers, by written notice to the other
      parties, if the Closing has not been consummated on or before February ___,
      2007; provided, however, that no such termination will affect the right of
      any
      party to sue for any breach by the other party (or parties).

     

    5.2  Fees
      and Expenses. At the Closing, the Company has agreed to reimburse Maxim
      Group, LLC (“Maxim”) the non-accountable sum of $20,000, for its legal fees and
      expenses, none of which has been paid prior to the Closing. The Company shall
      deliver, prior to the Closing, a completed and executed copy of the Closing
      Statement, attached hereto as Annex A. Except as expressly set forth in the
      Transaction Documents to the contrary, each party shall pay the fees and
      expenses of its advisers, counsel, accountants and other experts, if any, and
      all other expenses incurred by such party incident to the negotiation,
      preparation, execution, delivery and performance of this Agreement. The Company
      shall pay all Transfer Agent fees, stamp taxes and other taxes and duties levied
      in connection with the delivery of any Securities to the
      Purchasers.

     

    
      
        
        

      

      
        28

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

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

     

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

     

    5.8  No
      Third-Party Beneficiaries. This Agreement is intended for the benefit of the
      parties hereto and their respective successors and permitted assigns and is
      not
      for the benefit of, nor may any provision hereof be enforced by, any other
      Person, except as otherwise set forth in Section 4.9.

     

    
      
        
        

      

      
        29

        
          

        

      

      
        
        

      

    

     

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

     

    5.10  Survival.
      The representations and warranties contained herein shall survive the Closing
      and the delivery of the Shares and Warrant Shares.

     

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

     

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

     

    
      
        
        

      

      
        30

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

    5.16  Payment
      Set Aside. To the extent that the Company makes a payment or payments to any
      Purchaser pursuant to any Transaction Document or a Purchaser enforces or
      exercises its rights thereunder, and such payment or payments or the proceeds
      of
      such enforcement or exercise or any part thereof are subsequently invalidated,
      declared to be fraudulent or preferential, set aside, recovered from, disgorged
      by or are required to be refunded, repaid or otherwise restored to the Company,
      a trustee, receiver or any other person under any law (including, without
      limitation, any bankruptcy law, state or federal law, common law or equitable
      cause of action), then to the extent of any such restoration the obligation
      or
      part thereof originally intended to be satisfied shall be revived and continued
      in full force and effect as if such payment had not been made or such
      enforcement or setoff had not occurred.

     

    5.17  Independent
      Nature of Purchasers’ Obligations and Rights. The obligations of each
      Purchaser under any Transaction Document are several and not joint with the
      obligations of any other Purchaser, and no Purchaser shall be responsible in
      any
      way for the performance or non-performance of the obligations of any other
      Purchaser under any Transaction Document. Nothing contained herein or in any
      other Transaction Document, and no action taken by any Purchaser pursuant
      thereto, shall be deemed to constitute the Purchasers as a partnership, an
      association, a joint venture or any other kind of entity, or create a
      presumption that the Purchasers are in any way acting in concert or as a group
      with respect to such obligations or the transactions contemplated by the
      Transaction Documents. Each Purchaser shall be entitled to independently protect
      and enforce its rights, including without limitation, the rights arising out
      of
      this Agreement or out of the other Transaction Documents, and it shall not
      be
      necessary for any other Purchaser to be joined as an additional party in any
      proceeding for such purpose. Each Purchaser has been represented by its own
      separate legal counsel in their review and negotiation of the Transaction
      Documents. For reasons of administrative convenience only, Purchasers and their
      respective counsel have chosen to communicate with the Company through FWS.
      FWS
      does not represent any of the Purchasers but only Maxim, the placement agent
      for
      the transaction. The Company has elected to provide all Purchasers with the
      same
      terms and Transaction Documents for the convenience of the Company and not
      because it was required or requested to do so by the Purchasers.

     

    
      
        
        

      

      
        31

        
          

        

      

      
        
        

      

    

     

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

     

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

     

    (Signature
      Pages Follow)

     

    
      
        
        

      

      
        32

        
          

        

      

      
        
        

      

    

     

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

     

    

    
      	
              TELESTONE
                TECHNOLOGIES CORPORATION

            	
              Address
                for Notice:

            
	 	 
	
              By:__________________________________________

              Name:

              Title:

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

            	 

    

     

     

    
 

    

    

    [REMAINDER
      OF PAGE INTENTIONALLY LEFT BLANK

    SIGNATURE
      PAGE FOR PURCHASER FOLLOWS]

     

    
      
        
        

      

      
        33

        
          

        

      

      
        
        

      

    

     

    [PURCHASER
      SIGNATURE PAGES TO TSTC SECURITIES PURCHASE AGREEMENT]

    

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

     

    Name
      of
      Purchaser: ________________________________________________________

     

    Signature
      of Authorized Signatory of Purchaser:
      __________________________________

     

    Name
      of
      Authorized Signatory:
      ____________________________________________________

     

    Title
      of
      Authorized Signatory:
      _____________________________________________________

     

    Email
      Address of
      Purchaser:________________________________________________

     

    Fax
      Number of Purchaser:
      ________________________________________________

     

    Address
      for Notice of Purchaser:

    

    

    

    

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

    

    

     

    

    Subscription
      Amount:

    Shares:

    Warrant
      Shares:

    

    EIN
      Number: [PROVIDE
      THIS UNDER SEPARATE COVER]

    

    

    [SIGNATURE
      PAGES CONTINUE]

     

    
      
        
        

      

      
        34

        
          

        

      

      
        
        

      

    

     

    Annex
      A 

    

    CLOSING
      STATEMENT

    

    Pursuant
      to the attached Securities Purchase Agreement, dated as of the date hereto,
      the
      purchasers shall purchase up to $[___________ of Common Stock and Warrants
      from
      Telestone Technologies Corporation (the “Company”).
      All
      funds will be wired into a trust account maintained by ____________, counsel
      to
      the Company. All funds will be disbursed in accordance with this Closing
      Statement. 

    

    Disbursement
      Date:
      February
      ___, 2007

     

      
        

      

    

    

    
      	
              I.
                PURCHASE
                PRICE

            	 
	
              Gross
                Proceeds to be Received in Trust

            	
              $

            
	 	 
	
              II. DISBURSEMENTS

            	 
	
               

            	
              $

            
	
               

            	
              $

            
	 	
              $

            
	 	
              $

            
	 	
              $

            
	 	 
	
              Total
                Amount Disbursed:

            	
              $

            
	 	 
	 	 
	 	 
	
              WIRE
                INSTRUCTIONS:

               

            	 
	
              To:
                _____________________________________

               

               

               

            	 
	
              To:
                _____________________________________

               

               

               

            	 

    

    

    
      
        
        

      

      
        35EXHIBIT
      10.2

    

     

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

    

    COMMON
      STOCK PURCHASE WARRANT

    

    TELESTONE
      TECHNOLOGIES CORPORATION

     

     

    
      	Warrant Shares: ______	 	Initial Exercise Date: August ___,
              2007
	 	 	Issue Date: February __,
              2007

    

     

    THIS
      COMMON STOCK PURCHASE WARRANT (the “Warrant”)
      certifies that, for value received, _____________ (the “Holder”)
      is
      entitled, upon the terms and subject to the limitations on exercise and the
      conditions hereinafter set forth, at any time on or after the six month
      anniversary of the date of the Purchase Agreement (the “Initial
      Exercise Date”)
      and on
      or prior to the close of business on the four year anniversary of the Initial
      Exercise Date (the “Termination
      Date”)
      but
      not thereafter, to subscribe for and purchase from Telestone Technologies
      Corporation, a Delaware corporation (the “Company”),
      up to
      ______ shares (the “Warrant
      Shares”)
      of
      common stock, par value $.001 per share (the “Common
      Stock”),
      of
      the Company. The purchase price of one share of Common Stock under this Warrant
      shall be equal to the Exercise Price, as defined in Section 2(b). 

     

    Section
      1. Definitions.
      Capitalized terms used and not otherwise defined herein shall have the meanings
      set forth in that certain Securities Purchase Agreement, dated February ____,
      2007 (the “Purchase
      Agreement”),
      among
      the Company and the purchasers signatory thereto.

     

    Section
      2. Exercise.

     

    a)  Exercise
      of Warrant.
      Exercise of the purchase rights represented by this Warrant may be made, in
      whole or in part, at any time or times on or after the Initial Exercise Date
      and
      on or before the Termination Date by delivery to the Company of a duly executed
      facsimile copy of the Notice of Exercise Form annexed hereto (or such other
      office or agency of the Company as it may designate by notice in writing to
      the
      registered Holder at the address of such Holder appearing on the books of the
      Company); and, within 3 Trading Days of the date said Notice of Exercise is
      delivered to the Company, the Company shall have received payment of the
      aggregate Exercise Price of the shares thereby purchased by wire transfer or
      cashier’s check drawn on a United States bank. Notwithstanding anything herein
      to the contrary, the Holder shall not be required to physically surrender this
      Warrant to the Company until the Holder has purchased all of the Warrant Shares
      available hereunder and the Warrant has been exercised in full, in which case,
      the Holder shall surrender this Warrant to the Company for cancellation within
      3
      Trading Days of the date the final Notice of Exercise is delivered to the
      Company. Partial exercises of this Warrant resulting in purchases of a portion
      of the total number of Warrant Shares available hereunder shall have the effect
      of lowering the outstanding number of Warrant Shares purchasable hereunder
      in an
      amount equal to the applicable number of Warrant Shares purchased. The Holder
      and the Company shall maintain records showing the number of Warrant Shares
      purchased and the date of such purchases. The Company shall deliver any
      objection to any Notice of Exercise Form within 1 Business Day of receipt of
      such notice. In the event of any dispute or discrepancy, the records of the
      Holder shall be controlling and determinative in the absence of manifest error.
      The Holder and any assignee, by acceptance of this Warrant, acknowledge and
      agree that, by reason of the provisions of this paragraph, following the
      purchase of a portion of the Warrant Shares hereunder, the number of Warrant
      Shares available for purchase hereunder at any given time may be less than
      the
      amount stated on the face hereof.

     

    
      
         

      

      
        1

        
          

        

      

      
         

      

    

     

    b)  Exercise
      Price.
      The
      exercise price per share of the Common Stock under this Warrant shall be
$11.60,
      subject to adjustment hereunder (the “Exercise
      Price”).

     

    c)  Cashless
      Exercise.
      If at
      any time after one year from the date of issuance of this Warrant there is
      no
      effective Registration Statement registering, or no current prospectus available
      for, the resale of the Warrant Shares by the Holder, then this Warrant may
      also
      be exercised at such time by means of a “cashless exercise” in which the Holder
      shall be entitled to receive a certificate for the number of Warrant Shares
      equal to the quotient obtained by dividing [(A-B) (X)] by (A),
      where:

     

    (A)
      = the
      VWAP on the Trading Day immediately preceding the date of such
      election;

    

    (B)
      = the
      Exercise Price of this Warrant, as adjusted; and 

    

    (X)
      = the
      number of Warrant Shares issuable upon exercise of this Warrant in accordance
      with the terms of this Warrant by means of a cash exercise rather than a
      cashless exercise.

     

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

     

    Notwithstanding
      anything herein to the contrary, on the Termination Date, this Warrant shall
      be
      automatically exercised via cashless exercise pursuant to this Section
      2(c).

    

    d)  Holder’s
      Restrictions.
      The
      Company shall not effect any exercise of this Warrant, and a Holder shall not
      have the right to exercise any portion of this Warrant, pursuant to Section
      2(c)
      or otherwise, to the extent that after giving effect to such issuance after
      exercise as set forth on the applicable Notice of Exercise, such Holder
      (together with such Holder’s Affiliates, and any other person or entity acting
      as a group together with such Holder or any of such Holder’s Affiliates), as set
      forth on the applicable Notice of Exercise, would beneficially own in excess
      of
      the Beneficial Ownership Limitation (as defined below).  For purposes of
      the foregoing sentence, the number of shares of Common Stock beneficially owned
      by such Holder and its Affiliates shall include the number of shares of Common
      Stock issuable upon exercise of this Warrant with respect to which such
      determination is being made, but shall exclude the number of shares of Common
      Stock which would be issuable upon (A) exercise of the remaining, nonexercised
      portion of this Warrant beneficially owned by such Holder or any of its
      Affiliates and (B) exercise or conversion of the unexercised or nonconverted
      portion of any other securities of the Company (including, without limitation,
      any other Warrants) subject to a limitation on conversion or exercise analogous
      to the limitation contained herein beneficially owned by such Holder or any
      of
      its affiliates.  Except as set forth in the preceding sentence, for
      purposes of this Section 2(d), beneficial ownership shall be calculated in
      accordance with Section 13(d) of the Exchange Act and the rules and regulations
      promulgated thereunder, it being acknowledged by a Holder that the Company
      is
      not representing to such Holder that such calculation is in compliance with
      Section 13(d) of the Exchange Act and such Holder is solely responsible for
      any
      schedules required to be filed in accordance therewith. To the extent that
      the
      limitation contained in this Section 2(d) applies, the determination of whether
      this Warrant is exercisable (in relation to other securities owned by such
      Holder together with any Affiliates) and of which a portion of this Warrant
      is
      exercisable shall be in the sole discretion of a Holder, and the submission
      of a
      Notice of Exercise shall be deemed to be each Holder’s determination of whether
      this Warrant is exercisable (in relation to other securities owned by such
      Holder together with any Affiliates) and of which portion of this Warrant is
      exercisable, in each case subject to such aggregate percentage limitation,
      and
      the Company shall have no obligation to verify or confirm the accuracy of such
      determination. In addition, a determination as to any group status as
      contemplated above shall be determined in accordance with Section 13(d) of
      the
      Exchange Act and the rules and regulations promulgated thereunder. For purposes
      of this Section 2(d), in determining the number of outstanding shares of Common
      Stock, a Holder may rely on the number of outstanding shares of Common Stock
      as
      reflected in (x) the Company’s most recent Form 10-QSB or Form 10-KSB, as the
      case may be, (y) a more recent public announcement by the Company or (z) any
      other notice by the Company or the Company’s Transfer Agent setting forth the
      number of shares of Common Stock outstanding.  Upon the written or oral
      request of a Holder, the Company shall within two Trading Days confirm orally
      and in writing to such Holder the number of shares of Common Stock then
      outstanding.  In any case, the number of outstanding shares of Common Stock
      shall be determined after giving effect to the conversion or exercise of
      securities of the Company, including this Warrant, by such Holder or its
      Affiliates since the date as of which such number of outstanding shares of
      Common Stock was reported. The “Beneficial
      Ownership Limitation”
shall
      be 4.99% of the number of shares of the Common Stock outstanding immediately
      after giving effect to the issuance of shares of Common Stock issuable upon
      exercise of this Warrant. The Beneficial Ownership Limitation provisions of
      this
      Section 2(d) may be waived by such Holder, at the election of such Holder,
      upon
      not less than 61 days’ prior notice to the Company to change the Beneficial
      Ownership Limitation to 9.99% of the number of shares of the Common Stock
      outstanding immediately after giving effect to the issuance of shares of Common
      Stock upon exercise of this Warrant, and the provisions of this Section 2(d)
      shall continue to apply. Upon such a change by a Holder of the Beneficial
      Ownership Limitation from such 4.99% limitation to such 9.99% limitation, the
      Beneficial Ownership Limitation may not be further waived by such Holder. The
      provisions of this paragraph shall be construed and implemented in a manner
      otherwise than in strict conformity with the terms of this Section 2(d) to
      correct this paragraph (or any portion hereof) which may be defective or
      inconsistent with the intended Beneficial Ownership Limitation herein contained
      or to make changes or supplements necessary or desirable to properly give effect
      to such limitation. The limitations contained in this paragraph shall apply
      to a
      successor holder of this Warrant.

     

    
      
         

      

      
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    e)  Mechanics
      of Exercise.
      

     

    i.  Authorization
      of Warrant Shares.
      The
      Company covenants that all Warrant Shares which may be issued upon the exercise
      of the purchase rights represented by this Warrant will, upon exercise of the
      purchase rights represented by this Warrant, be duly authorized, validly issued,
      fully paid and nonassessable and free from all taxes, liens and charges created
      by the Company in respect of the issue thereof (other than taxes in respect
      of
      any transfer occurring contemporaneously with such issue). 

     

    ii.  Delivery
      of Certificates Upon Exercise.
      Certificates for shares purchased hereunder shall be transmitted by the transfer
      agent of the Company to the Holder by crediting the account of the Holder’s
      prime broker with the Depository Trust Company through its Deposit Withdrawal
      Agent Commission (“DWAC”)
      system
      if the Company is a participant in such system, and otherwise by physical
      delivery to the address specified by the Holder in the Notice of Exercise within
      3 Trading Days from the delivery to the Company of the Notice of Exercise Form,
      surrender of this Warrant (if required) and payment of the aggregate Exercise
      Price as set forth above (“Warrant
      Share Delivery Date”).
      This
      Warrant shall be deemed to have been exercised on the date the Exercise Price
      is
      received by the Company. The Warrant Shares shall be deemed to have been issued,
      and Holder or any other person so designated to be named therein shall be deemed
      to have become a holder of record of such shares for all purposes, as of the
      date the Warrant has been exercised by payment to the Company of the Exercise
      Price (or by cashless exercise, if permitted) and all taxes required to be
      paid
      by the Holder, if any, pursuant to Section 2(e)(vii) prior to the issuance
      of
      such shares, have been paid. If the Company fails for any reason to deliver
      to
      the Holder certificates evidencing the Warrant Shares subject to a Notice of
      Exercise by the Warrant Share Delivery Date, the Company shall pay to such
      Holder, in cash, as liquidated damages and not as a penalty, for each $1,000
      of
      Warrant Shares subject to such exercise (based on the VWAP of the Common Stock
      on the date of the applicable Notice of Exercise), $10 per Trading Day
      (increasing to $20 per Trading Day on the fifth Trading Day after such
      liquidated damages begin to accrue) for each Trading Day after such Warrant
      Share Delivery Date until such certificates are delivered. 

     

    
      
         

      

      
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    iii.  Delivery
      of New Warrants Upon Exercise.
      If this
      Warrant shall have been exercised in part, the Company shall, at the request
      of
      a Holder and upon surrender of this Warrant certificate, at the time of delivery
      of the certificate or certificates representing Warrant Shares, deliver to
      Holder a new Warrant evidencing the rights of Holder to purchase the unpurchased
      Warrant Shares called for by this Warrant, which new Warrant shall in all other
      respects be identical with this Warrant.

     

    iv.  Rescission
      Rights.
      If the
      Company fails to cause its transfer agent to transmit to the Holder a
      certificate or certificates representing the Warrant Shares pursuant to this
      Section 2(e)(iv) by the Warrant Share Delivery Date, then the Holder will have
      the right to rescind such exercise.

     

    v.  Compensation
      for Buy-In on Failure to Timely Deliver Certificates Upon
      Exercise.
      In
      addition to any other rights available to the Holder, if the Company fails
      to
      cause its transfer agent to transmit to the Holder a certificate or certificates
      representing the Warrant Shares pursuant to an exercise on or before the Warrant
      Share Delivery Date, and if after such date the Holder is required by its broker
      to purchase (in an open market transaction or otherwise) or the Holder’s
      brokerage firm otherwise purchases, shares of Common Stock to deliver in
      satisfaction of a sale by the Holder of the Warrant Shares which the Holder
      anticipated receiving upon such exercise (a “Buy-In”),
      then
      the Company shall (1) pay in cash to the Holder the amount by which (x) the
      Holder’s total purchase price (including brokerage commissions, if any) for the
      shares of Common Stock so purchased exceeds (y) the amount obtained by
      multiplying (A) the number of Warrant Shares that the Company was required
      to
      deliver to the Holder in connection with the exercise at issue times (B) the
      price at which the sell order giving rise to such purchase obligation was
      executed, and (2) at the option of the Holder, either reinstate the portion
      of
      the Warrant and equivalent number of Warrant Shares for which such exercise
      was
      not honored or deliver to the Holder the number of shares of Common Stock that
      would have been issued had the Company timely complied with its exercise and
      delivery obligations hereunder. For example, if the Holder purchases Common
      Stock having a total purchase price of $11,000 to cover a Buy-In with respect
      to
      an attempted exercise of shares of Common Stock with an aggregate sale price
      giving rise to such purchase obligation of $10,000, under clause (1) of the
      immediately preceding sentence the Company shall be required to pay the Holder
      $1,000. The Holder shall provide the Company written notice indicating the
      amounts payable to the Holder in respect of the Buy-In and, upon request of
      the
      Company, evidence of the amount of such loss. Nothing herein shall limit a
      Holder’s right to pursue any other remedies available to it hereunder, at law or
      in equity including, without limitation, a decree of specific performance and/or
      injunctive relief with respect to the Company’s failure to timely deliver
      certificates representing shares of Common Stock upon exercise of the Warrant
      as
      required pursuant to the terms hereof.

     

    
      
         

      

      
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    vi.  No
      Fractional Shares or Scrip.
      No
      fractional shares or scrip representing fractional shares shall be issued upon
      the exercise of this Warrant. As to any fraction of a share which Holder would
      otherwise be entitled to purchase upon such exercise, the Company shall at
      its
      election, either pay a cash adjustment in respect of such final fraction in
      an
      amount equal to such fraction multiplied by the Exercise Price or round up
      to
      the next whole share.

     

    vii.  Charges,
      Taxes and Expenses.
      Issuance of certificates for Warrant Shares shall be made without charge to
      the
      Holder for any issue or transfer tax or other incidental expense in respect
      of
      the issuance of such certificate, all of which taxes and expenses shall be
      paid
      by the Company, and such certificates shall be issued in the name of the Holder
      or in such name or names as may be directed by the Holder; provided,
      however,
      that in
      the event certificates for Warrant Shares are to be issued in a name other
      than
      the name of the Holder, this Warrant when surrendered for exercise shall be
      accompanied by the Assignment Form attached hereto duly executed by the Holder;
      and the Company may require, as a condition thereto, the payment of a sum
      sufficient to reimburse it for any transfer tax incidental thereto.

     

    viii.  Closing
      of Books.
      The
      Company will not close its stockholder books or records in any manner which
      prevents the timely exercise of this Warrant, pursuant to the terms
      hereof.

     

    Section
      3. Certain
      Adjustments.

     

    a)  Stock
      Dividends and Splits.
      If the
      Company, at any time while this Warrant is outstanding: (A) pays a stock
      dividend or otherwise make a distribution or distributions on shares of its
      Common Stock or any other equity or equity equivalent securities payable in
      shares of Common Stock (which, for avoidance of doubt, shall not include any
      shares of Common Stock issued by the Company upon exercise of this Warrant),
      (B)
      subdivides outstanding shares of Common Stock into a larger number of shares,
      (C) combines (including by way of reverse stock split) outstanding shares of
      Common Stock into a smaller number of shares, or (D) issues by reclassification
      of shares of the Common Stock any shares of capital stock of the Company, then
      in each case the Exercise Price shall be multiplied by a fraction of which
      the
      numerator shall be the number of shares of Common Stock (excluding treasury
      shares, if any) outstanding immediately before such event and of which the
      denominator shall be the number of shares of Common Stock outstanding
      immediately after such event and the number of shares issuable upon exercise
      of
      this Warrant shall be proportionately adjusted. Any adjustment made pursuant
      to
      this Section 3(a) shall become effective immediately after the record date
      for
      the determination of stockholders entitled to receive such dividend or
      distribution and shall become effective immediately after the effective date
      in
      the case of a subdivision, combination or re classification.

     

    
      
         

      

      
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    b)  Subsequent
      Equity Sales.
      If the
      Company or any Subsidiary thereof, as applicable, at any time while this Warrant
      is outstanding, shall sell or grant any option to purchase, or sell or grant
      any
      right to reprice its securities, or otherwise dispose of or issue (or announce
      any offer, sale, grant or any option to purchase or other disposition) any
      Common Stock or Common Stock Equivalents entitling any Person to acquire shares
      of Common Stock, at an effective price per share less than the then Exercise
      Price (such lower price, the “Base
      Share Price”
and
      such issuances collectively, a “Dilutive
      Issuance”)
      (if
      the holder of the Common Stock or Common Stock Equivalents so issued shall
      at
      any time, whether by operation of purchase price adjustments, reset provisions,
      floating conversion, exercise or exchange prices or otherwise, or due to
      warrants, options or rights per share which are issued in connection with such
      issuance, be entitled to receive shares of Common Stock at an effective price
      per share which is less than the Exercise Price, such issuance shall be deemed
      to have occurred for less than the Exercise Price on such date of the Dilutive
      Issuance), then the Exercise Price shall be reduced and only reduced by
      multiplying the Exercise Price by a fraction, the numerator of which is the
      number of shares of Common Stock issued and outstanding on a fully-diluted
      basis
      immediately prior to the Dilutive Issuance plus the number of shares of Common
      Stock which the offering price for such Dilutive Issuance would purchase at
      the
      then Exercise Price, and the denominator of which shall be the sum of the number
      of shares of Common Stock issued and outstanding on a fully diluted basis
      immediately prior to the Dilutive Issuance plus the number of shares of Common
      Stock and Common Stock Equivalents so issued or issuable in connection with
      the
      Dilutive Issuance, and the number of Warrant Shares issuable hereunder shall
      be
      increased such that the aggregate Exercise Price payable hereunder, after taking
      into account the decrease in the Exercise Price, shall be equal to the aggregate
      Exercise Price prior to such adjustment. Such adjustment shall be made whenever
      such Common Stock or Common Stock Equivalents are issued. Notwithstanding the
      foregoing, no adjustments shall be made, paid or issued under this Section
      3(b)
      in respect of an Exempt Issuance and in no event shall the Exercise Price be
      reduced under this Section 3(b) to less than $____1,
      subject
      to adjustment for reverse and forward stock splits, stock dividends, stock
      combinations and other similar transactions of the Common Stock that occur
      after
      the date of this Agreement. The Company shall notify the Holder in writing,
      no
      later than the Trading Day following the issuance of any Common Stock or Common
      Stock Equivalents subject to this Section 3(b), indicating therein the
      applicable issuance price, or applicable reset price, exchange price, conversion
      price and other pricing terms (such notice the “Dilutive
      Issuance Notice”).
      For
      purposes of clarification, whether or not the Company provides a Dilutive
      Issuance Notice pursuant to this Section 3(b), upon the occurrence of any
      Dilutive Issuance, after the date of such Dilutive Issuance the Holder is
      entitled to receive a number of Warrant Shares based upon the Base Share Price
      regardless of whether the Holder accurately refers to the Base Share Price
      in
      the Notice of Exercise.

     

    
      

    

    
      1  
101%
        of
        the closing bid price of the Common Stock on the Trading Market immediately
        prior to the date of the Purchase Agreement.

    

     

    
      
         

      

      
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    c)  Subsequent
      Rights Offerings.
      If the
      Company, at any time while the Warrant is outstanding, shall issue rights,
      options or warrants to all holders of Common Stock (and not to Holders)
      entitling them to subscribe for or purchase shares of Common Stock at a price
      per share less than the VWAP at the record date mentioned below, then the
      Exercise Price shall be multiplied by a fraction, of which the denominator
      shall
      be the number of shares of the Common Stock outstanding on the date of issuance
      of such rights or warrants plus the number of additional shares of Common Stock
      offered for subscription or purchase, and of which the numerator shall be the
      number of shares of the Common Stock outstanding on the date of issuance of
      such
      rights or warrants plus the number of shares which the aggregate offering price
      of the total number of shares so offered (assuming receipt by the Company in
      full of all consideration payable upon exercise of such rights, options or
      warrants) would purchase at such VWAP. Such adjustment shall be made whenever
      such rights or warrants are issued, and shall become effective immediately
      after
      the record date for the determination of stockholders entitled to receive such
      rights, options or warrants. 

     

    d)  Pro
      Rata Distributions.
      If the
      Company, at any time prior to the Termination Date, shall distribute to all
      holders of Common Stock (and not to Holders of the Warrants) evidences of its
      indebtedness or assets (including cash and cash dividends) or rights or warrants
      to subscribe for or purchase any security other than the Common Stock (which
      shall be subject to Section 3(b)), then in each such case the Exercise Price
      shall be adjusted by multiplying the Exercise Price in effect immediately prior
      to the record date fixed for determination of stockholders entitled to receive
      such distribution by a fraction of which the denominator shall be the VWAP
      determined as of the record date mentioned above, and of which the numerator
      shall be such VWAP on such record date less the then per share fair market
      value
      at such record date of the portion of such assets or evidence of indebtedness
      so
      distributed applicable to one outstanding share of the Common Stock as
      determined by the Board of Directors in good faith. In either case the
      adjustments shall be described in a statement provided to the Holder of the
      portion of assets or evidences of indebtedness so distributed or such
      subscription rights applicable to one share of Common Stock. Such adjustment
      shall be made whenever any such distribution is made and shall become effective
      immediately after the record date mentioned above.

     

    
      
         

      

      
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    e)  Fundamental
      Transaction.
      If, at
      any time while this Warrant is outstanding, (A) the Company effects any merger
      or consolidation of the Company with or into another Person, (B) the Company
      effects any sale of all or substantially all of its assets in one or a series
      of
      related transactions, (C) any tender offer or exchange offer (whether by the
      Company or another Person) is completed pursuant to which holders of Common
      Stock are permitted to tender or exchange their shares for other securities,
      cash or property, or (D) the Company effects any reclassification of the Common
      Stock or any compulsory share exchange pursuant to which the Common Stock is
      effectively converted into or exchanged for other securities, cash or property
      (each “Fundamental
      Transaction”),
      then,
      upon any subsequent exercise of this Warrant, the Holder shall have the right
      to
      receive, for each Warrant Share that would have been issuable upon such exercise
      immediately prior to the occurrence of such Fundamental Transaction (whether
      or
      not this Warrant is exercisable by its terms on such date), the number of shares
      of Common Stock of the successor or acquiring corporation or of the Company,
      if
      it is the surviving corporation, and any additional consideration (the
“Alternate
      Consideration”)
      receivable as a result of such merger, consolidation or disposition of assets
      by
      a Holder of the number of shares of Common Stock for which this Warrant is
      exercisable immediately prior to such event. For purposes of any such exercise,
      the determination of the Exercise Price shall be appropriately adjusted to
      apply
      to such Alternate Consideration based on the amount of Alternate Consideration
      issuable in respect of one share of Common Stock in such Fundamental
      Transaction, and the Company shall apportion the Exercise Price among the
      Alternate Consideration in a reasonable manner reflecting the relative value
      of
      any different components of the Alternate Consideration. If holders of Common
      Stock are given any choice as to the securities, cash or property to be received
      in a Fundamental Transaction, then the Holder shall be given the same choice
      as
      to the Alternate Consideration it receives upon any exercise of this Warrant
      following such Fundamental Transaction. To the extent necessary to effectuate
      the foregoing provisions, any successor to the Company or surviving entity
      in
      such Fundamental Transaction shall issue to the Holder a new warrant consistent
      with the foregoing provisions and evidencing the Holder’s right to exercise such
      warrant into Alternate Consideration. The terms of any agreement pursuant to
      which a Fundamental Transaction is effected shall include terms requiring any
      such successor or surviving entity to comply with the provisions of this Section
      3(e) and insuring that this Warrant (or any such replacement security) will
      be
      similarly adjusted upon any subsequent transaction analogous to a Fundamental
      Transaction. Notwithstanding anything to the contrary, in the event of a
      Fundamental Transaction that is (1) an all cash transaction, (2) a “Rule 13e-3
      transaction” as defined in Rule 13e-3 under the Securities Exchange Act of 1934,
      as amended, or (3) a Fundamental Transaction involving a person or entity not
      traded on a national securities exchange, the Nasdaq Global Select Market,
      the
      Nasdaq Global Market, the Nasdaq Capital Market, the Company or any successor
      entity shall pay at the Holder’s option, exercisable at any time concurrently
      with or within 30 days after the consummation of the Fundamental Transaction,
      an
      amount of cash equal to the value of this Warrant as determined in accordance
      with the Black-Scholes option pricing formula using an expected volatility
      equal
      to the 100 day historical price volatility obtained from the HVT function on
      Bloomberg L.P. as of the trading day immediately prior to the public
      announcement of the Fundamental Transaction. 

     

    
      
         

      

      
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    f)  Calculations.
      All
      calculations under this Section 3 shall be made to the nearest cent or the
      nearest 1/100th of a share, as the case may be. For purposes of this Section
      3,
      the number of shares of Common Stock deemed to be issued and outstanding as
      of a
      given date shall be the sum of the number of shares of Common Stock (excluding
      treasury shares, if any) issued and outstanding.

     

    g)  [Intentionally
      Deleted].

     

    h)  Notice
      to Holder.
      

     

    i.  Adjustment
      to Exercise Price.
      Whenever the Exercise Price is adjusted pursuant to any provision of this
      Section 3, the Company shall promptly mail to the Holder a notice setting forth
      the Exercise Price after such adjustment and setting forth a brief statement
      of
      the facts requiring such adjustment. If the Company enters into a Variable
      Rate
      Transaction (as defined in the Purchase Agreement), despite the prohibition
      thereon in the Purchase Agreement, the Company shall be deemed to have issued
      Common Stock or Common Stock Equivalents at the lowest possible conversion
      or
      exercise price at which such securities may be converted or
      exercised.

     

    ii.  Notice
      to Allow Exercise by Holder.
      If (A)
      the Company shall declare a dividend (or any other distribution in whatever
      form) on the Common Stock; (B) the Company shall declare a special nonrecurring
      cash dividend on or a redemption of the Common Stock; (C) the Company shall
      authorize the granting to all holders of the Common Stock rights or warrants
      to
      subscribe for or purchase any shares of capital stock of any class or of any
      rights; (D) the approval of any stockholders of the Company shall be required
      in
      connection with any reclassification of the Common Stock, any consolidation
      or
      merger to which the Company is a party, any sale or transfer of all or
      substantially all of the assets of the Company, of any compulsory share exchange
      whereby the Common Stock is converted into other securities, cash or property;
      (E) the Company shall authorize the voluntary or involuntary dissolution,
      liquidation or winding up of the affairs of the Company; then, in each case,
      the
      Company shall cause to be mailed to the Holder at its last address as it shall
      appear upon the Warrant Register of the Company, at least 20 calendar days
      prior
      to the applicable record or effective date hereinafter specified, a notice
      stating (x) the date on which a record is to be taken for the purpose of such
      dividend, distribution, redemption, rights or warrants, or if a record is not
      to
      be taken, the date as of which the holders of the Common Stock of record to
      be
      entitled to such dividend, distributions, redemption, rights or warrants are
      to
      be determined or (y) the date on which such reclassification, consolidation,
      merger, sale, transfer or share exchange is expected to become effective or
      close, and the date as of which it is expected that holders of the Common Stock
      of record shall be entitled to exchange their shares of the Common Stock for
      securities, cash or other property deliverable upon such reclassification,
      consolidation, merger, sale, transfer or share exchange; provided that the
      failure to mail such notice or any defect therein or in the mailing thereof
      shall not affect the validity of the corporate action required to be specified
      in such notice. The Holder is entitled to exercise this Warrant during the
      20-day period commencing on the date of such notice to the effective date of
      the
      event triggering such notice.

     

    
      
         

      

      
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    Section
      4. Transfer
      of Warrant.

     

    a)  Transferability.
      Subject
      to compliance with any applicable securities laws and the conditions set forth
      in Section 4(d) hereof and to the provisions of Section 4.1 of the Purchase
      Agreement, this Warrant and all rights hereunder (including, without limitation,
      any registration rights) are transferable, in whole or in part, upon surrender
      of this Warrant at the principal office of the Company or its designated agent,
      together with a written assignment of this Warrant substantially in the form
      attached hereto duly executed by the Holder or its agent or attorney and funds
      sufficient to pay any transfer taxes payable upon the making of such transfer.
      Upon such surrender and, if required, such payment, the Company shall execute
      and deliver a new Warrant or Warrants in the name of the assignee or assignees
      and in the denomination or denominations specified in such instrument of
      assignment, and shall issue to the assignor a new Warrant evidencing the portion
      of this Warrant not so assigned, and this Warrant shall promptly be cancelled.
      A
      Warrant, if properly assigned, may be exercised by a new holder for the purchase
      of Warrant Shares without having a new Warrant issued. 

     

    b)  New
      Warrants.
      This
      Warrant may be divided or combined with other Warrants upon presentation hereof
      at the aforesaid office of the Company, together with a written notice
      specifying the names and denominations in which new Warrants are to be issued,
      signed by the Holder or its agent or attorney. Subject to compliance with
      Section 4(a), as to any transfer which may be involved in such division or
      combination, the Company shall execute and deliver a new Warrant or Warrants
      in
      exchange for the Warrant or Warrants to be divided or combined in accordance
      with such notice.

     

    c)  Warrant
      Register.
      The
      Company shall register this Warrant, upon records to be maintained by the
      Company for that purpose (the “Warrant
      Register”),
      in
      the name of the record Holder hereof from time to time. The Company may deem
      and
      treat the registered Holder of this Warrant as the absolute owner hereof for
      the
      purpose of any exercise hereof or any distribution to the Holder, and for all
      other purposes, absent actual notice to the contrary.

     

    d)  Transfer
      Restrictions.
      If,
      at the time
      of the surrender of this Warrant in connection with any transfer of this
      Warrant, the transfer of this Warrant shall not be registered pursuant to an
      effective registration
      statement under the Securities Act
      and under
      applicable state securities or blue sky laws, the Company may require, as a
      condition of allowing such transfer, that (i) the Holder or transferee of this
      Warrant, as the case may be, furnish to the Company a written opinion of counsel
      (which opinion shall be in form, substance and scope customary for opinions
      of
      counsel in comparable transactions) to the effect that such transfer may be
      made
      without
      registration under
      the
      Securities Act and under applicable state securities or blue sky laws, and
      (ii)
      the Holder or transferee execute and deliver to the Company an investment letter
      in form and substance acceptable to the Company, and (iii) the transferee be
      an
“accredited
      investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7), or (a)(8)
      promulgated under the Securities Act or a “qualified institutional buyer” as
      defined in Rule 144A(a) promulgated under the Securities Act.

     

    
      
         

      

      
        11

        
          

        

      

      
         

      

    

     

    Section
      5. Miscellaneous.

     

    a)  No
      Rights as Shareholder Until Exercise.
      This
      Warrant does not entitle the Holder to any voting rights or other rights as
      a
      shareholder of the Company prior to the exercise hereof as set forth in Section
      2(e)(ii). 

     

    b)  Loss,
      Theft, Destruction or Mutilation of Warrant.
      The
      Company covenants that upon receipt by the Company of evidence reasonably
      satisfactory to it of the loss, theft, destruction or mutilation of this Warrant
      or any stock certificate relating to the Warrant Shares, and in case of loss,
      theft or destruction, of indemnity or security reasonably satisfactory to it
      (which, in the case of the Warrant, shall not include the posting of any bond),
      and upon surrender and cancellation of such Warrant or stock certificate, if
      mutilated, the Company will make and deliver a new Warrant or stock certificate
      of like tenor and dated as of such cancellation, in lieu of such Warrant or
      stock certificate.

     

    c)  Saturdays,
      Sundays, Holidays, etc.
      If the
      last or appointed day for the taking of any action or the expiration of any
      right required or granted herein shall not be a Business Day, then such action
      may be taken or such right may be exercised on the next succeeding Business
      Day.

     

    d)  Authorized
      Shares.
      

     

    The
      Company covenants that during the period the Warrant is outstanding, it will
      reserve from its authorized and unissued Common Stock a sufficient number of
      shares to provide for the issuance of the Warrant Shares upon the exercise
      of
      any purchase rights under this Warrant. The Company further covenants that
      its
      issuance of this Warrant shall constitute full authority to its officers who
      are
      charged with the duty of executing stock certificates to execute and issue
      the
      necessary certificates for the Warrant Shares upon the exercise of the purchase
      rights under this Warrant. The Company will take all such reasonable action
      as
      may be necessary to assure that such Warrant Shares may be issued as provided
      herein without violation of any applicable law or regulation, or of any
      requirements of the Trading Market upon which the Common Stock may be listed.
      

     

    Except
      and to the extent as waived or consented to by the Holder, the Company shall
      not
      by any action, including, without limitation, amending its certificate of
      incorporation or through any reorganization, transfer of assets, consolidation,
      merger, dissolution, issue or sale of securities or any other voluntary action,
      avoid or seek to avoid the observance or performance of any of the terms of
      this
      Warrant, but will at all times in good faith assist in the carrying out of
      all
      such terms and in the taking of all such actions as may be necessary or
      appropriate to protect the rights of Holder as set forth in this Warrant against
      impairment. Without limiting the generality of the foregoing, the Company will
      (a) not increase the par value of any Warrant Shares above the amount payable
      therefor upon such exercise immediately prior to such increase in par value,
      (b)
      take all such action as may be necessary or appropriate in order that the
      Company may validly and legally issue fully paid and nonassessable Warrant
      Shares upon the exercise of this Warrant, and (c) use commercially reasonable
      efforts to obtain all such authorizations, exemptions or consents from any
      public regulatory body having jurisdiction thereof as may be necessary to enable
      the Company to perform its obligations under this Warrant.

     

    
      
         

      

      
        12

        
          

        

      

      
         

      

    

     

    Before
      taking any action which would result in an adjustment in the number of Warrant
      Shares for which this Warrant is exercisable or in the Exercise Price, the
      Company shall obtain all such authorizations or exemptions thereof, or consents
      thereto, as may be necessary from any public regulatory body or bodies having
      jurisdiction thereof.

     

    e)  Jurisdiction.
      All
      questions concerning the construction, validity, enforcement and interpretation
      of this Warrant shall be determined in accordance with the provisions of the
      Purchase Agreement.

     

    f)  Restrictions.
      The
      Holder acknowledges that the Warrant Shares acquired upon the exercise of this
      Warrant, if not registered, will have restrictions upon resale imposed by state
      and federal securities laws.

     

    g)  Nonwaiver
      and Expenses.
      No
      course of dealing or any delay or failure to exercise any right hereunder on
      the
      part of Holder shall operate as a waiver of such right or otherwise prejudice
      Holder’s rights, powers or remedies, notwithstanding the fact that all rights
      hereunder terminate on the Termination Date. If the Company willfully and
      knowingly fails to comply with any provision of this Warrant, which results
      in
      any material damages to the Holder, the Company shall pay to Holder such amounts
      as shall be sufficient to cover any costs and expenses including, but not
      limited to, reasonable attorneys’ fees, including those of appellate
      proceedings, incurred by Holder in collecting any amounts due pursuant hereto
      or
      in otherwise enforcing any of its rights, powers or remedies
      hereunder.

     

    h)  Notices.
      Any
      notice, request or other document required or permitted to be given or delivered
      to the Holder by the Company shall be delivered in accordance with the notice
      provisions of the Purchase Agreement.

     

    i)  Limitation
      of Liability.
      No
      provision hereof, in the absence of any affirmative action by Holder to exercise
      this Warrant to purchase Warrant Shares, and no enumeration herein of the rights
      or privileges of Holder, shall give rise to any liability of Holder for the
      purchase price of any Common Stock or as a stockholder of the Company, whether
      such liability is asserted by the Company or by creditors of the
      Company.

     

    
      
         

      

      
        13

        
          

        

      

      
         

      

    

     

    j)  Remedies.
      Holder,
      in addition to being entitled to exercise all rights granted by law, including
      recovery of damages, will be entitled to specific performance of its rights
      under this Warrant. The Company agrees that monetary damages would not be
      adequate compensation for any loss incurred by reason of a breach by it of
      the
      provisions of this Warrant and hereby agrees to waive and not to assert the
      defense in any action for specific performance that a remedy at law would be
      adequate.

     

    k)  Successors
      and Assigns.
      Subject
      to applicable securities laws, this Warrant and the rights and obligations
      evidenced hereby shall inure to the benefit of and be binding upon the
      successors of the Company and the successors and permitted assigns of Holder.
      The provisions of this Warrant are intended to be for the benefit of all Holders
      from time to time of this Warrant and shall be enforceable by any such Holder
      or
      holder of Warrant Shares.

     

    l)  Amendment.
      This
      Warrant may be modified or amended or the provisions hereof waived with the
      written consent of the Company and the Holder.

     

    m)  Severability.
      Wherever possible, each provision of this Warrant shall be interpreted in such
      manner as to be effective and valid under applicable law, but if any provision
      of this Warrant shall be prohibited by or invalid under applicable law, such
      provision shall be ineffective to the extent of such prohibition or invalidity,
      without invalidating the remainder of such provisions or the remaining
      provisions of this Warrant.

     

    n)  Headings.
      The
      headings used in this Warrant are for the convenience of reference only and
      shall not, for any purpose, be deemed a part of this Warrant.

     

    

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

     

    
      
         

      

      
        14

        
          

        

      

      
         

      

    

     

    IN
      WITNESS WHEREOF, the Company has caused this Warrant to be executed by its
      officer thereunto duly authorized as of the date first above
      indicated.

    
      	 	 	 
	 	TELESTONE
              TECHNOLOGIES CORPORATION
	 
 	 
 	 
 
	 	By:  	 
	 	
              
Name:
	 	
              Title:

            

    

     

    
      
         

      

      
        15

        
          

        

      

      
         

      

    

     

    NOTICE
      OF EXERCISE

    

    TO: TELESTONE
      TECHNOLOGIES CORPORATION

    

    (1)  The
      undersigned hereby elects to purchase ________ Warrant Shares of the Company
      pursuant to the terms of the attached Warrant (only if exercised in full),
      and
      tenders herewith payment of the exercise price in full, together with all
      applicable transfer taxes, if any.

     

    (2)  Payment
      shall take the form of (check applicable box):

     

    o
      in lawful money of the
      United States; or

     

    o
      [if permitted] the cancellation of such number of
      Warrant Shares as is necessary, in accordance with the formula set forth in
      subsection 2(c), to exercise this Warrant with respect to the maximum number
      of
      Warrant Shares purchasable pursuant to the cashless exercise procedure set
      forth
      in subsection 2(c).

     

    (3)  Please
      issue a certificate or certificates representing said Warrant Shares in the
      name
      of the undersigned or in such other name as is specified below:

     

    _______________________________

     

    

    The
      Warrant Shares shall be delivered to the following DWAC Account Number or by
      physical delivery of a certificate to:

    

    _______________________________

     

    _______________________________

     

    _______________________________

    

    (4)
      Accredited
      Investor.
      The
      undersigned is an “accredited investor” as defined in Regulation D promulgated
      under the Securities Act of 1933, as amended.

    

    [SIGNATURE
      OF HOLDER]

     

    Name
      of
      Investing Entity:
      ________________________________________________________________________

    Signature
      of Authorized Signatory of Investing Entity:
      _________________________________________________

    Name
      of
      Authorized Signatory:
      ___________________________________________________________________

    Title
      of
      Authorized Signatory:
      ____________________________________________________________________

    Date:
      ________________________________________________________________________________________

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    ASSIGNMENT
      FORM

    

    (To
      assign the foregoing warrant, execute

    this
      form
      and supply required information. 

    Do
      not
      use this form to exercise the warrant.)

    

     

    FOR
      VALUE
      RECEIVED, [____] all of or [_______] shares of the foregoing Warrant and all
      rights evidenced thereby are hereby assigned to

     

    

    _______________________________________________
      whose address is

    

    _______________________________________________________________.

    

     

    _______________________________________________________________

    

    Dated:
      ______________, _______

    

    

    Holder’s
      Signature: _____________________________

    

    Holder’s
      Address: _____________________________

     

     

    _____________________________

    

    

    

    Signature
      Guaranteed: ___________________________________________

    

    

    NOTE:
      The
      signature to this Assignment Form must correspond with the name as it appears
      on
      the face of the Warrant, without alteration or enlargement or any change
      whatsoever, and must be guaranteed by a bank or trust company. Officers of
      corporations and those acting in a fiduciary or other representative capacity
      should file proper evidence of authority to assign the foregoing
      Warrant.

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