Document:

EXHIBIT
      B 

    

    REGISTRATION
      RIGHTS AGREEMENT

    

    This
      Registration Rights Agreement (this “Agreement”)
      is
      made and entered into as of March 10, 2006, among Aprecia Inc., a Delaware
      corporation (the “Company”),
      and
      the purchasers signatory hereto (each such purchaser is a “Purchaser”
and
      collectively, the “Purchasers”).

    

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

    

    The
      Company and the Purchasers hereby agree as follows:

    

    1. Definitions

    

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

    

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

    

    “Effectiveness
      Date”
means,
      with respect to the initial Registration Statement required to be filed
      hereunder, the 150th
      calendar
      day following the date hereof and, with respect to any additional Registration
      Statements which may be required pursuant to Section 3(c), the 90th
      calendar
      day following the date on which the Company first knows, or reasonably should
      have known, that such additional Registration Statement is required hereunder;
      provided,
      however,
      in the
      event the Company is notified by the Commission that one of the above
      Registration Statements will not be reviewed or is no longer subject to further
      review and comments, the Effectiveness Date as to such Registration Statement
      shall be the fifth Trading Day following the date on which the Company is so
      notified if such date precedes the dates required above.

    

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

    

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

    

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

    

    “Filing
      Date”
means,
      with respect to the initial Registration Statement required hereunder, the
      90th
      calendar
      day following the date hereof and, with respect to any additional Registration
      Statements which may be required pursuant to Section 3(c), the 30th
      day
      following the date on which the Company first knows, or reasonably should have
      known that such additional Registration Statement is required
      hereunder.

    

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

    

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

    

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

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

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

    

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

    

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

    

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

    

    “Registrable
      Securities”
means
      (i) all of the Underlying Shares, (ii) any securities issued or issuable upon
      any stock split, dividend or other distribution, recapitalization or similar
      event with respect to the foregoing, (iii) any additional shares issuable in
      connection with any anti-dilution provisions in the Transaction
      documents(without giving effect to any limitations on exercise set forth in
      the
      Debenture), (iv) shares issuable to Palladium Capital, upon exercise of a common
      stock purchase warrant issuable in connection with the sale of the Debentures
      as
      a part of the compensation payable to Palladium Capital, and (v) shares issuable
      in connection with a proposed private placement of shares of common stock of
      the
      Company not to exceed $50,000 in gross proceeds at a per share price of not
      less
      than $0.12. 

    

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

    

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

    

    “Rule
      424”
means
      Rule 424 promulgated by the Commission pursuant to the Securities Act, as such
      Rule may be amended from time to time, or any similar rule or regulation
      hereafter adopted by the Commission having substantially the same purpose and
      effect as such Rule.

    

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

    

    2.
       Shelf
      Registration

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    (a)  On
      or
      prior to each Filing Date, the Company shall prepare and file with the
      Commission a “Shelf” Registration Statement covering the resale of 200% of the
      Registrable Securities and such shares as set forth in Schedule 6(b) on such
      Filing Date for an offering to be made on a continuous basis pursuant to Rule
      415. The Registration Statement shall be on Form SB-2 (except if the Company
      is
      not then eligible to register for resale the Registrable Securities on Form
      SB-2, in which case such registration shall be on another appropriate form
      in
      accordance herewith) and shall contain (unless otherwise directed by the
      Holders) substantially the “Plan
      of Distribution”
      attached hereto as Annex
      A.
      Subject
      to the terms of this Agreement, the Company shall use its best efforts to cause
      a Registration Statement to be declared effective under the Securities Act
      as
      promptly as possible after the filing thereof, but in any event prior to the
      applicable Effectiveness Date, and shall use its best efforts to keep such
      Registration Statement continuously effective under the Securities Act until
      all
      Registrable Securities covered by such Registration Statement have been sold
      or
      may be sold without volume restrictions pursuant to Rule 144(k) as determined
      by
      the counsel to the Company pursuant to a written opinion letter to such effect,
      addressed and acceptable to the Company’s transfer agent and the affected
      Holders (the “Effectiveness
      Period”).
      The
      Company shall telephonically request effectiveness of a Registration Statement
      as of 5:00 pm Eastern Time on a Trading Day. The Company shall immediately
      notify the Holders via facsimile of the effectiveness of a Registration
      Statement on the same Trading Day that the Company telephonically confirms
      effectiveness with the Commission, which shall be the date requested for
      effectiveness of a Registration Statement. The Company shall, by 9:30 am Eastern
      Time on the Trading Day after the Effective Date (as defined in the Purchase
      Agreement), file a Form 424(b)(5) with the Commission. Failure to so notify
      the
      Holder within 1 Trading Day of such notification shall be deemed an Event under
      Section 2(b).

     

    (b)  If:
      (i) a
      Registration Statement is not filed on or prior to its Filing Date (if the
      Company files a Registration Statement without affording the Holders the
      opportunity to review and comment on the same as required by Section 3(a),
      the
      Company shall not be deemed to have satisfied this clause (i)), or (ii) the
      Company fails to file with the Commission a request for acceleration in
      accordance with Rule 461 promulgated under the Securities Act, within three
      Trading Days of the date that the Company is notified (orally or in writing,
      whichever is earlier) by the Commission that a Registration Statement will
      not
      be “reviewed,” or not subject to further review, or (iii) prior to its
      Effectiveness Date, the Company fails to file a pre-effective amendment and
      otherwise respond in writing to comments made by the Commission in respect
      of
      such Registration Statement within 15 calendar days after the receipt of
      comments by or notice from the Commission that such amendment is required in
      order for a Registration Statement to be declared effective, or (iv) a
      Registration Statement filed or required to be filed hereunder is not declared
      effective by the Commission by its Effectiveness Date, or (v) after the
      Effectiveness Date, a Registration Statement ceases for any reason to remain
      continuously effective as to all Registrable Securities for which it is required
      to be effective, or the Holders are not permitted to utilize the Prospectus
      therein to resell such Registrable Securities for 10 consecutive calendar days
      but no more than an aggregate of 15 calendar days during any 12-month period
      (which need not be consecutive Trading Days) (any such failure or breach being
      referred to as an “Event”,
      and
      for purposes of clause (i) or (iv) the date on which such Event occurs, or
      for
      purposes of clause (ii) the date on which such five Trading Day period is
      exceeded, or for purposes of clause (iii) the date which such 10 calendar day
      period is exceeded, or for purposes of clause (v) the date on which such 10
      or
      15 calendar day period, as applicable, is exceeded being referred to as
“Event
      Date”),
      then
      in addition to any other rights the Holders may have hereunder or under
      applicable law, on each such Event Date and on each monthly anniversary of
      each
      such Event Date (if the applicable Event shall not have been cured by such
      date)
      until the applicable Event is cured, the Company shall pay to each Holder an
      amount in cash, as partial liquidated damages and not as a penalty, equal to
      2%
      of the aggregate purchase price paid by such Holder pursuant to the Purchase
      Agreement for any Registrable Securities then held by such Holder. If the
      Company fails to pay any partial liquidated damages pursuant to this Section
      in
      full within seven days after the date payable, the Company will pay interest
      thereon at a rate of 18% per annum (or such lesser maximum amount that is
      permitted to be paid by applicable law) to the Holder, accruing daily from
      the
      date such partial liquidated damages are due until such amounts, plus all such
      interest thereon, are paid in full. The partial liquidated damages pursuant
      to
      the terms hereof shall apply on a daily pro-rata basis for any portion of a
      month prior to the cure of an Event.

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    3.
       Registration
      Procedures.

    

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

    

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

    

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

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    (c)  If
      during
      the Effectiveness Period, the number of Registrable Securities at any time
      exceeds 75% of the number of shares of Common Stock then registered in a
      Registration Statement, then the Company shall file as soon as reasonably
      practicable but in any case prior to the applicable Filing Date, an additional
      Registration Statement covering the resale by the Holders of not less than
      150%
      of the number of such Registrable Securities.

    

    (d)  Notify
      the Holders of Registrable Securities to be sold (which notice shall, pursuant
      to clauses (ii) through (vi) hereof, be accompanied by an instruction to suspend
      the use of the Prospectus until the requisite changes have been made) as
      promptly as reasonably possible (and, in the case of (i)(A) below, not less
      than
      five Trading Days prior to such filing) and (if requested by any such Person)
      confirm such notice in writing no later than one Trading Day following the
      day
      (i)(A) when a Prospectus or any Prospectus supplement or post-effective
      amendment to a Registration Statement is proposed to be filed; (B) when the
      Commission notifies the Company whether there will be a “review” of such
      Registration Statement and whenever the Commission comments in writing on such
      Registration Statement (the Company shall provide true and complete copies
      thereof and all written responses thereto to each of the Holders); and (C)
      with
      respect to a Registration Statement or any post-effective amendment, when the
      same has become effective; (ii) of any request by the Commission or any other
      Federal or state governmental authority for amendments or supplements to a
      Registration Statement or Prospectus or for additional information; (iii) of
      the
      issuance by the Commission or any other federal or state governmental authority
      of any stop order suspending the effectiveness of a Registration Statement
      covering any or all of the Registrable Securities or the initiation of any
      Proceedings for that purpose; (iv) of the receipt by the Company of any
      notification with respect to the suspension of the qualification or exemption
      from qualification of any of the Registrable Securities for sale in any
      jurisdiction, or the initiation or threatening of any Proceeding for such
      purpose; (v) of the occurrence of any event or passage of time that makes the
      financial statements included in a Registration Statement ineligible for
      inclusion therein or any statement made in a Registration Statement or
      Prospectus or any document incorporated or deemed to be incorporated therein
      by
      reference untrue in any material respect or that requires any revisions to
      a
      Registration Statement, Prospectus or other documents so that, in the case
      of a
      Registration Statement or the Prospectus, as the case may be, it will not
      contain any untrue statement of a material fact or omit to state any material
      fact required to be stated therein or necessary to make the statements therein,
      in light of the circumstances under which they were made, not misleading; and
      (vi) the occurrence or existence of any pending corporate development with
      respect to the Company that the Company believes may be material and that,
      in
      the determination of the Company, makes it not in the best interest of the
      Company to allow continued availability of a Registration Statement or
      Prospectus; provided that any and all of such information shall remain
      confidential to each Holder until such information otherwise becomes public,
      unless disclosure by a Holder is required by law; provided,
      further,
      notwithstanding each Holder’s agreement to keep such information confidential,
      the Holders make no acknowledgement that any such information is material,
      non-public information.

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

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

    

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

    

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

    

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

    

    (i)  Prior
      to
      any resale of Registrable Securities by a Holder, use its commercially
      reasonable efforts to register or qualify or cooperate with the selling Holders
      in connection with the registration or qualification (or exemption from the
      Registration or qualification) of such Registrable Securities for the resale
      by
      the Holder under the securities or Blue Sky laws of such jurisdictions within
      the United States as any Holder reasonably requests in writing, to keep each
      registration or qualification (or exemption therefrom) effective during the
      Effectiveness Period and to do any and all other acts or things reasonably
      necessary to enable the disposition in such jurisdictions of the Registrable
      Securities covered by each Registration Statement; provided, that the Company
      shall not be required to qualify generally to do business in any jurisdiction
      where it is not then so qualified, subject the Company to any material tax
      in
      any such jurisdiction where it is not then so subject or file a general consent
      to service of process in any such jurisdiction.

    

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

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

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

    

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

    

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

    

    
      	
              4.

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

            

    

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    5. Indemnification

    

    (a)  Indemnification
      by the Company.
      The
      Company shall, notwithstanding any termination of this Agreement, indemnify
      and
      hold harmless each Holder, the officers, directors, agents, brokers (including
      brokers who offer and sell Registrable Securities as principal as a result
      of a
      pledge or any failure to perform under a margin call of Common Stock),
      investment advisors and employees of each of them, each Person who controls
      any
      such Holder (within the meaning of Section 15 of the Securities Act or Section
      20 of the Exchange Act) and the officers, directors, agents and employees of
      each such controlling Person, to the fullest extent permitted by applicable
      law,
      from and against any and all losses, claims, damages, liabilities, costs
      (including, without limitation, reasonable attorneys’ fees) and expenses
      (collectively, “Losses”),
      as
      incurred, arising out of or relating to any untrue or alleged untrue statement
      of a material fact contained in a Registration Statement, any Prospectus or
      any
      form of prospectus or in any amendment or supplement thereto or in any
      preliminary prospectus, or arising out of or relating to any omission or alleged
      omission of a material fact required to be stated therein or necessary to make
      the statements therein (in the case of any Prospectus or form of prospectus
      or
      supplement thereto, in light of the circumstances under which they were made)
      not misleading, except to the extent, but only to the extent, that (i) such
      untrue statements or omissions are based solely upon information regarding
      such
      Holder furnished in writing to the Company by such Holder expressly for use
      therein, or to the extent that such information relates to such Holder or such
      Holder’s proposed method of distribution of Registrable Securities and was
      reviewed and expressly approved in writing by such Holder expressly for use
      in a
      Registration Statement, such Prospectus or such form of Prospectus or in any
      amendment or supplement thereto (it being understood that the Holder has
      approved Annex A hereto for this purpose) or (ii) in the case of an occurrence
      of an event of the type specified in Section 3(d)(ii)-(vi), the use by such
      Holder of an outdated or defective Prospectus after the Company has notified
      such Holder in writing that the Prospectus is outdated or defective and prior
      to
      the receipt by such Holder of the Advice contemplated in Section 6(d). The
      Company shall notify the Holders promptly of the institution, threat or
      assertion of any Proceeding arising from or in connection with the transactions
      contemplated by this Agreement of which the Company is aware.

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

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

    

    (c)  Conduct
      of Indemnification Proceedings.
      If any
      Proceeding shall be brought or asserted against any Person entitled to indemnity
      hereunder (an “Indemnified
      Party”),
      such
      Indemnified Party shall promptly notify the Person from whom indemnity is sought
      (the “Indemnifying
      Party”)
      in
      writing, and the Indemnifying Party shall have the right to assume the defense
      thereof, including the employment of counsel reasonably satisfactory to the
      Indemnified Party and the payment of all fees and expenses incurred in
      connection with defense thereof; provided, that the failure of any Indemnified
      Party to give such notice shall not relieve the Indemnifying Party of its
      obligations or liabilities pursuant to this Agreement, except (and only) to
      the
      extent that it shall be finally determined by a court of competent jurisdiction
      (which determination is not subject to appeal or further review) that such
      failure shall have prejudiced the Indemnifying Party.

    

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

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

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

    

    (d)  Contribution.
      If the
      indemnification under Section 5(a) or 5(b) is unavailable to an Indemnified
      Party or insufficient to hold an Indemnified Party harmless for any Losses,
      then
      each Indemnifying Party shall contribute to the amount paid or payable by such
      Indemnified Party, in such proportion as is appropriate to reflect the relative
      fault of the Indemnifying Party and Indemnified Party in connection with the
      actions, statements or omissions that resulted in such Losses as well as any
      other relevant equitable considerations. The relative fault of such Indemnifying
      Party and Indemnified Party shall be determined by reference to, among other
      things, whether any action in question, including any untrue or alleged untrue
      statement of a material fact or omission or alleged omission of a material
      fact,
      has been taken or made by, or relates to information supplied by, such
      Indemnifying Party or Indemnified Party, and the parties’ relative intent,
      knowledge, access to information and opportunity to correct or prevent such
      action, statement or omission. The amount paid or payable by a party as a result
      of any Losses shall be deemed to include, subject to the limitations set forth
      in this Agreement, any reasonable attorneys’ or other reasonable fees or
      expenses incurred by such party in connection with any Proceeding to the extent
      such party would have been indemnified for such fees or expenses if the
      indemnification provided for in this Section was available to such party in
      accordance with its terms.

    

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

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

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

    

    6. Miscellaneous

    

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

    

    (b)  No
      Piggyback on Registrations.
      Except
      as set forth on Schedule
      6(b)
      attached
      hereto, neither the Company nor any of its security holders (other than the
      Holders in such capacity pursuant hereto) may include securities of the Company
      in the initial Registration Statement other than the Registrable Securities.
      Except as set forth on Schedule 6(b) attached hereto, no Person has any right
      to
      cause the Company to effect the registration under the Securities Act of any
      securities of the Company. The Company shall not file any other registration
      statements until the initial Registration Statement required hereunder is
      declared effective by the Commission.

    

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

    

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

    

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

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

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

    

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

    

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

    

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

    

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

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

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

    

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

    

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

    

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

    

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

    

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

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

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

     

    
      	 	 	 
	 	APRECIA
              INC.
	 
 	 
 	 
 
	 	By:  	 
	 	
              

              Name:

              Title:

            

    

    

    

    

    

    

    

    

    [SIGNATURE
      PAGE OF HOLDERS FOLLOWS]

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    [SIGNATURE
      PAGE OF HOLDERS TO APRECIA INC. RRA]

     

    Name
      of
      Holder: ALPHA CAPITAL AKTIENGESELLSCHAFT

    

    Signature
      of Authorized Signatory of Holder:
      __________________________________________

    

    Name
      of
      Authorized Signatory:
      _____________________________________________________

    

    Title
      of
      Authorized Signatory:
      ______________________________________________________

     

    

    

    [SIGNATURE
      PAGES CONTINUE]

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    [SIGNATURE
      PAGE OF HOLDERS TO APRECIA INC. RRA]

     

    Name
      of
      Holder: DOUBLE U MASTER FUND L.P.

    

    Signature
      of Authorized Signatory of Holder:
      __________________________________________

    

    Name
      of
      Authorized Signatory:
      _____________________________________________________

    

    Title
      of
      Authorized Signatory:
      ______________________________________________________

     

    

    

    [SIGNATURE
      PAGES CONTINUE]

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    [SIGNATURE
      PAGE OF HOLDERS TO APRECIA INC. RRA]

     

    Name
      of
      Holder: TOBANNA ENTERPRISES CORP.

    

    Signature
      of Authorized Signatory of Holder:
      __________________________________________

    

    Name
      of
      Authorized Signatory:
      _____________________________________________________

    

    Title
      of
      Authorized Signatory:
      ______________________________________________________

     

    

    

    [SIGNATURE
      PAGES CONTINUE]

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    [SIGNATURE
      PAGE OF HOLDERS TO APRECIA INC. RRA]

     

    Name
      of
      Holder: CMS CAPITAL

    

    Signature
      of Authorized Signatory of Holder:
      __________________________________________

    

    Name
      of
      Authorized Signatory:
      _____________________________________________________

    

    Title
      of
      Authorized Signatory:
      ______________________________________________________

     

    

    

    [SIGNATURE
      PAGES CONTINUE]

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    Plan
      of Distribution

    

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

     

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

          

     

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

          

     

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

          

     

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

          

     

    	·  	
            privately
              negotiated transactions;

          

     

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

          

     

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

          

     

    	·  	
            a
              combination of any such methods of sale;

          

     

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

          

     

    	·  	
            any
              other method permitted pursuant to applicable
              law.

          

     

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

     

    Broker-dealers
      engaged by the Selling Stockholders may arrange for other brokers-dealers to
      participate in sales. Broker-dealers may receive commissions or discounts from
      the Selling Stockholders (or, if any broker-dealer acts as agent for the
      purchaser of shares, from the purchaser) in amounts to be negotiated, but,
      except as set forth in a supplement to this Prospectus, in the case of an agency
      transaction not in excess of a customary brokerage commission in compliance
      with
      NASDR Rule 2440; and in the case of a principal transaction a markup or markdown
      in compliance with NASDR IM-2440. 

     

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

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

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

     

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

     

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

     

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

     

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

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    Annex
      B

     

    APRECIA
      INC.

     

    Selling
      Securityholder Notice and Questionnaire

     

    The
      undersigned beneficial owner of common stock, no par value per share (the
“Common
      Stock”),
      of
      Aprecia Inc., a Delaware corporation (the “Company”),
      (the
“Registrable
      Securities”)
      understands that the Company has filed or intends to file with the Securities
      and Exchange Commission (the “Commission”)
      a
      registration statement on Form SB-2 (the “Registration
      Statement”)
      for
      the registration and resale under Rule 415 of the Securities Act of 1933, as
      amended (the “Securities
      Act”),
      of
      the Registrable Securities, in accordance with the terms of the Registration
      Rights Agreement, dated as of March ___, 2006 (the “Registration
      Rights Agreement”),
      among
      the Company and the Purchasers named therein. A copy of the Registration Rights
      Agreement is available from the Company upon request at the address set forth
      below. All capitalized terms not otherwise defined herein shall have the
      meanings ascribed thereto in the Registration Rights Agreement.

     

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

     

    NOTICE

     

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

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

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

     

    QUESTIONNAIRE

     

    1. Name.

     

    
      	 	
              (a)

            	
              Full
                Legal Name of Selling Securityholder

               

               

            

    

     

    
      	 	
              (b)

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

               

               

            

    

     

    
      	 	
              (c)

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

               

               

            

    

     

     

     

    2.
      Address for Notices to Selling Securityholder:

     

    
      	 
	 
	 
	
              Telephone: 

            
	
              Fax: 

            
	
              Contact
                Person: 

            

    

    

    3.
      Beneficial Ownership of Registrable Securities:

     

    
      	 	
              (a)

            	
              Type
                and Principal Amount of Registrable Securities beneficially
                owned:

               

            

    

    
      
        	 	
                 

              	
                 

              

      

      
        
          	 	
                   

                	
                   

                

        

         

      

    

    4.
      Broker-Dealer Status:

     

    
      	 	
              (a)

            	
              Are
                you a broker-dealer?

            

    

     

    Yes 
      o
No 
      o

     

    
      	 	
              (b)

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

            

    

     

    Yes 
      o
No 
      o

     

    
      	 	
              Note:

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

            

    

     

    
      	 	
              (c)

            	
              Are
                you an affiliate of a
                broker-dealer?

            

    

     

    Yes 
      o
No 
      o

     

    
      	 	
              (d)

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

            

    

     

    Yes 
      o
No 
      o

     

    
      	 	
              Note:

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

            

    

     

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

     

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

    
       

      
        	 	
                (a)

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

                

                 

              

      

      
        
          	 	
                   

                	
                   

                

        

        
          
            	 	
                     

                  	
                     

                  

          

           

        

      

    

     

    
 

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    6.
      Relationships with the Company:

     

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

     

    State
      any
      exceptions here:

     

    
      	 
	 
	 

    

    

     

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

     

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

     

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

     

    
      	Dated:_____________________	Beneficial
              Owner:___________________________  
	 	
               

              By:______________________________________

                Name:

                Title: 

            

    

       

    

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

    

    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

     

     

    SCHEDULE
      6(b)

    

     

    REGISTRABLE
      SECURITIES

     

    

     

    	·  	
            __
              shares issuable to the Purchasers;

          

     

    	·  	
            __
              shares issuable to Palladium Capital;

          

     

    	·  	
            __
              shares issuable in connection with a proposed private placement of
              shares
              of common stock of the Company not to exceed $50,000 in gross proceeds
              at
              an issue price of not more than $___ per
              share.SECURITY
      AGREEMENT

    1.    Identification.

    

    This
      Security Agreement (the "Agreement"), dated as of March 10, 2006, is entered
      into by and between Aprecia Inc., a Delaware corporation ("Parent"), the
      Subsidiaries of the Parent identified on Annex I hereto (each a "Guarantor"
      and
      together with Parent, each a “Debtor” and collectively the "Debtors"), and
      Michael Hartstein, as collateral agent acting in the manner and to the extent
      described in the Collateral Agent Agreement defined below (the "Collateral
      Agent"), for the benefit of the parties identified on Schedule A hereto
      (collectively, the "Lenders").

    

    2.    Recitals.

    

    2.1 The
      Lenders have made, are making and will be making loans to Parent (the "Loans").
      It is beneficial to each Debtor that the Loans were made and are being
      made.

    

    2.2 The
      Loans are and will be evidenced by certain convertible debentures (each a
“Debenture”) issued by Parent on or about the date of and after the date of this
      Agreement pursuant to a securities purchase agreement (“Securities Purchase
      Agreement”) to which Parent and Lenders are parties. The Debentures are further
      identified on Schedule A hereto and were and will be executed by Parent as
      “Borrower” or “Debtor” for the benefit of each Lender as the “Holder” or
“Lender” thereof. Schedule A hereto may be amended to include such other Lenders
      who become parties hereto and sign this Agreement, the Collateral Agent
      Agreement and any other agreement reasonably requested by the Collateral Agent,
      who will have purchased Debentures pursuant to the Securities Purchase
      Agreement.

    

    2.3 In
      consideration of the Loans made and to be made by Lenders to Parent and for
      other good and valuable consideration, and as security for the performance
      by
      Parent of its obligations under the Debentures and as security for the repayment
      of the Loans and all other sums due from Debtors to Lenders arising under the
      Transaction Documents (as defined in the Securities Purchase Agreement), and
      any
      other agreement between or among them (collectively, the "Obligations"), each
      Debtor, for good and valuable consideration, receipt of which is acknowledged,
      has agreed to grant to the Collateral Agent, for the benefit of the Lenders,
      a
      security interest in the Collateral (as such term is hereinafter defined),
      on
      the terms and conditions hereinafter set forth.

    

    2.4 The
      Lenders have appointed Michael Hartstein as Collateral Agent pursuant to that
      certain Collateral Agent Agreement dated at or about March ____, 2006
      (“Collateral Agent Agreement”), among the Lenders and Collateral
      Agent.

    

    2.5 The
      following defined terms which are defined in the Uniform Commercial Code in
      effect in the State of New York on the date hereof are used herein as so
      defined: Accounts, Chattel Paper, Documents, Equipment, General Intangibles,
      Instruments, Inventory and Proceeds.

    

    3.    Grant
      of General Security Interest in Collateral.

    

    3.1  As
      security for the Obligations of Debtors, each Debtor hereby grants the
      Collateral Agent, for the benefit of the Lenders, a security interest in the
      Collateral.

    

    3.2  “Collateral”
      shall mean all of the following property of Debtors:

    

    
      
         

      

      
        1

        
          

        

      

      
         

      

    

    (A) All
      now owned and hereafter acquired right, title and interest of Debtors in, to
      and
      in respect of all Accounts, Goods, real or personal property, all present and
      future books and records relating to the foregoing and all products and Proceeds
      of the foregoing, and as set forth below:

    

    (i) All
      now owned and hereafter acquired right, title and interest of Debtors in, to
      and
      in respect of all: Accounts, interests in goods represented by Accounts,
      returned, reclaimed or repossessed goods with respect thereto and rights as
      an
      unpaid vendor; contract rights; Chattel Paper; investment property; General
      Intangibles (including but not limited to, tax and duty claims and refunds,
      registered and unregistered patents, trademarks, service marks, certificates,
      copyrights, trade names, applications for the foregoing, trade secrets,
      goodwill, processes, drawings, blueprints, customer lists, licenses, whether
      as
      licensor or licensee, choses in action and other claims, and existing and future
      leasehold interests in equipment, real estate and fixtures); Documents;
      Instruments; letters of credit, bankers’ acceptances or guaranties; cash moneys,
      deposits; securities, bank accounts, deposit accounts, credits and other
      property now or hereafter owned or held in any capacity by Debtors, as well
      as
      agreements or property securing or relating to any of the items referred to
      above;

    

    (ii)   Goods:
      All now owned and hereafter acquired right, title and interest of Debtors in,
      to
      and in respect of goods, including, but not limited to:

    

    (a) All
      Inventory, wherever located, whether now owned or hereafter acquired, of
      whatever kind, nature or description, including all raw materials,
      work-in-process, finished goods, and materials to be used or consumed in
      Debtors’ business; finished goods, timber cut or to be cut, oil, gas,
      hydrocarbons, and minerals extracted or to be extracted, and all names or marks
      affixed to or to be affixed thereto for purposes of selling same by the seller,
      manufacturer, lessor or licensor thereof and all Inventory which may be returned
      to any Debtor by its customers or repossessed by any Debtor and all of Debtors’
right, title and interest in and to the foregoing (including all of a Debtor’s
      rights as a seller of goods);

    

    (b) All
      Equipment and fixtures, wherever located, whether now owned or hereafter
      acquired, including, without limitation, all machinery, furniture and fixtures,
      and any and all additions, substitutions, replacements (including spare parts),
      and accessions thereof and thereto (including, but not limited to Debtors’
rights to acquire any of the foregoing, whether by exercise of a purchase option
      or otherwise);

    

    (iii)     
      Property:
      All now owned and hereafter acquired right, title and interests of Debtors
      in,
      to and in respect of any other personal property in or upon which a Debtor
      has
      or may hereafter have a security interest, lien or right of setoff; 

    

    (iv)  Books
      and Records:
      All present and future books and records relating to any of the above including,
      without limitation, all computer programs, printed output and computer readable
      data in the possession or control of the Debtors, any computer service bureau
      or
      other third party; and

    

    (v)      
      Products
      and Proceeds:
      All products and Proceeds of the foregoing in whatever form and wherever
      located, including, without limitation, all insurance proceeds and all claims
      against third parties for loss or destruction of or damage to any of the
      foregoing.

    

    (B) All
      now owned and hereafter acquired right, title and interest of Debtors in, to
      and
      in respect of the following:

    

    (i) the
      shares of stock, partnership interests, member interests or other equity
      interests at any time and from time to time acquired by Debtors of any and
      all
      entities now or hereafter existing, (such entities, being hereinafter referred
      to collectively as the "Pledged Issuers" and individually as a "Pledged
      Issuer"), the certificates representing such shares, partnership interests,
      member interests or other interests, all options and other rights, contractual
      or otherwise, in respect thereof and all dividends, distributions, cash,
      instruments, investment property and other property from time to time received,
      receivable or otherwise distributed in respect of or in exchange for any or
      all
      of such shares, partnership interests, member interests or other
      interests;

     

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

    (ii) all
      additional shares of stock, partnership interests, member interests or other
      equity interests from time to time acquired by Debtors, of any Pledged Issuer,
      the certificates representing such additional shares, all options and other
      rights, contractual or otherwise, in respect thereof and all dividends,
      distributions, cash, instruments, investment property and other property from
      time to time received, receivable or otherwise distributed in respect of or
      in
      exchange for any or all of such additional shares, interests or equity; and
      

    

    (iii) all
      security entitlements of Debtors in, and all Proceeds of any and all of the
      foregoing in each case, whether now owned or hereafter acquired by a Debtor
      and
      howsoever its interest therein may arise or appear (whether by ownership,
      security interest, lien, claim or otherwise).

    

    Notwithstanding
      anything to the contrary contained herein or any Transaction Document,
      Collateral shall not include any personal property which is, or at the time
      of a
      Debtor's acquisition thereof shall be subject to a purchase money mortgage
      or
      other purchase money lien or security interest, but only to the extent of the
      initial dollar amount such purchase money mortgage or lien.

    

    3.3 The
      Collateral Agent is hereby specifically authorized, after the Maturity Date
      (defined in the Debentures) accelerated or otherwise, or after an Event of
      Default (as defined herein) and the expiration of any applicable cure period,
      to
      transfer any Collateral into the name of the Collateral Agent and to take any
      and all action deemed advisable to the Collateral Agent to remove any transfer
      restrictions affecting the Collateral.

    

    4.    Perfection
      of Security Interest.

    

    4.1 Each
      Debtor shall prepare, execute and deliver to the Collateral Agent UCC-1
      Financing Statements. The Collateral Agent is instructed to prepare and file
      at
      each Debtor’s cost and expense, financing statements in such jurisdictions
      deemed advisable to the Collateral Agent, including but not limited to the
      State
      of Delaware. The Financing Statements are deemed to have been filed for the
      benefit of the Collateral Agent and Lenders identified on Schedule A
      hereto.

    

    4.2 The
      Parent shall deliver to Collateral Agent promptly stock certificates
      representing all of the shares of outstanding capital stock of the Guarantor
      (the "Securities"). All such certificates shall be held by or on behalf of
      Collateral Agent pursuant hereto and shall be delivered in suitable form for
      transfer by delivery, or shall be accompanied by duly executed instruments
      of
      transfer or assignment or undated stock powers executed in blank, all in form
      and substance satisfactory to Collateral Agent. 

     

    4.3 
      All
      other certificates and instruments constituting Collateral from time to time
      required to be pledged to Collateral Agent pursuant to the terms hereof (the
      "Additional Collateral") shall be delivered to Collateral Agent promptly upon
      receipt thereof by or on behalf of Debtors. All such certificates and
      instruments shall be held by or on behalf of Collateral Agent pursuant hereto
      and shall be delivered in suitable form for transfer by delivery, or shall
      be
      accompanied by duly executed instruments of transfer or assignment or undated
      stock powers executed in blank, all in form and substance satisfactory to
      Collateral Agent. If any Collateral consists of uncertificated securities,
      unless the immediately following sentence is applicable thereto, Debtors shall
      cause Collateral Agent (or its custodian, nominee or other designee) to become
      the registered holder thereof, or cause each issuer of such securities to agree
      that it will comply with instructions originated by Collateral Agent with
      respect to such securities without further consent by Debtors. If any Collateral
      consists of security entitlements, Debtors shall transfer such security
      entitlements to Collateral Agent (or its custodian, nominee or other designee)
      or cause the applicable securities intermediary to agree that it will comply
      with entitlement orders by Collateral Agent without further consent by Debtors.
      

     

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

    4.4 Within
      five (5) days after the receipt by a Debtor of any Additional Collateral, a
      Pledge Amendment, duly executed by such Debtor, in substantially the form of
      Annex I hereto (a "Pledge Amendment"), shall be delivered to Collateral Agent
      in
      respect of the Additional Collateral to be pledged pursuant to this Agreement.
      Each Debtor hereby authorizes Collateral Agent to attach each Pledge Amendment
      to this Agreement and agrees that all certificates or instruments listed on
      any
      Pledge Amendment delivered to Collateral Agent shall for all purposes hereunder
      constitute Collateral.

     

    4.5 If
      Debtor
      shall receive, by virtue of Debtor being or having been an owner of any
      Collateral, any (i) stock certificate (including, without limitation, any
      certificate representing a stock dividend or distribution in connection with
      any
      increase or reduction of capital, reclassification, merger, consolidation,
      sale
      of assets, combination of shares, stock split, spin-off or split-off),
      promissory note or other instrument, (ii) option or right, whether as an
      addition to, substitution for, or in exchange for, any Collateral, or otherwise,
      (iii) dividends payable in cash (except such dividends permitted to be retained
      by Debtor pursuant to Section 5.1 hereof) or in securities or other property
      or
      (iv) dividends or other distributions in connection with a partial or total
      liquidation or dissolution or in connection with a reduction of capital, capital
      surplus or paid-in surplus, Debtor shall receive such stock certificate,
      promissory note, instrument, option, right, payment or distribution in trust
      for
      the benefit of Collateral Agent, shall segregate it from Debtor's other property
      and shall deliver it forthwith to Collateral Agent, in the exact form received,
      with any necessary endorsement and/or appropriate stock powers duly executed
      in
      blank, to be held by Collateral Agent as Collateral and as further collateral
      security for the Obligations.

    

    5.    Distribution.

    

    5.1 So
      long as no Event of Default exists, Debtors shall be entitled to exercise all
      voting power and receive payments pertaining to any of the Collateral, provided
      such exercise is not contrary to the interests of the Lenders and does not
      impair the Collateral.

    

    5.2. At
      any time an Event of Default exists or has occurred, all rights of Debtors,
      upon
      notice given by Collateral Agent, to exercise the voting power and receive
      payments, which it would otherwise be entitled to pursuant to Section 5.1,
      shall
      cease and all such rights shall thereupon become vested in Collateral Agent,
      which shall thereupon have the sole right to exercise such voting power and
      receive such payments.

    

    5.3 All
      dividends, distributions, interest and other payments which are received by
      Debtors contrary to the provisions of Section 5.2 shall be received in trust
      for
      the benefit of Collateral Agent as security and Collateral for payment of the
      Obligations, shall be segregated from other funds of Debtors, and shall be
      forthwith paid over to Collateral Agent as Collateral in the exact form received
      with any necessary endorsement and/or appropriate stock powers duly executed
      in
      blank, to be held by Collateral Agent as Collateral and as further collateral
      security for the Obligations.

     

    6.    Further
      Action By Debtors; Covenants and Warranties.

    

    6.1 Collateral
      Agent at all times shall have a perfected security interest in the Collateral,
      the Securities, and the Additional Collateral (the "Perfected Collateral").
      Each
      Debtor has and will continue to have full title to the Collateral free from
      any
      liens, leases, encumbrances, judgments or other claims. Collateral Agent's
      security interest in the Collateral constitutes and will continue to constitute
      a first, prior and indefeasible security interest in favor of Collateral Agent.
      Each Debtor will do all acts and things, and will execute and file all
      instruments (including, but not limited to, security agreements, financing
      statements, continuation statements, etc.) reasonably requested by Collateral
      Agent to establish, maintain and continue the perfected security interest of
      Collateral Agent in the Perfected Collateral, and will promptly on demand,
      pay
      all costs and expenses of filing and recording, including the costs of any
      searches reasonably deemed necessary by Collateral Agent from time to time
      to
      establish and determine the validity and the continuing priority of the security
      interest of Collateral Agent, and also pay all other claims and charges that,
      in
      the opinion of Collateral Agent, exercised in good faith, are reasonably likely
      to materially prejudice, imperil or otherwise affect the Collateral or
      Collateral Agent’s or Lenders’ security interests therein.

    

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

    6.2 Other
      than in the ordinary course of business, for fair value and in cash, and except
      for Collateral which is substituted by assets of identical or greater value
      (with the consent of the Collateral Agent) or which has become obsolete or
      is of
      inconsequential value, each Debtor will not sell, transfer, assign or pledge
      those items of Collateral (or allow any such items to be sold, transferred,
      assigned or pledged), without the prior written consent of Collateral Agent
      other than a transfer of the Collateral to a wholly-owned subsidiary or to
      another Debtor on prior notice to Collateral Agent, and provided the Collateral
      remains subject to the security interest herein described. Although Proceeds
      of
      Collateral are covered by this Agreement, this shall not be construed to mean
      that Collateral Agent consents to any sale of the Collateral, except as provided
      herein. Sales of Collateral in the ordinary course of business shall be free
      of
      the security interest of Lenders and Collateral Agent and Lenders and Collateral
      Agent shall promptly execute such documents (including without limitation
      releases and termination statements) as may be required by Debtors to evidence
      or effectuate the same.

    

    6.3 Each
      Debtor will, at all reasonable times during regular business hours and upon
      reasonable notice, allow Collateral Agent or its representatives free and
      complete access to the Collateral and all of such Debtor's records which in
      any
      way relate to the Collateral, for such inspection and examination as Collateral
      Agent reasonably deems necessary.

    

    6.4 Each
      Debtor, at its sole cost and expense, will protect and defend this Security
      Agreement, all of the rights of Collateral Agent and Lenders hereunder, and
      the
      Collateral against the claims and demands of all other persons.

    

    6.5 Debtors
      will promptly notify Collateral Agent of any levy, distraint or other seizure
      by
      legal process or otherwise of any part of the Collateral, and of any threatened
      or filed claims or proceedings that are reasonably likely to affect or impair
      any of the rights of Collateral Agent under this Security Agreement in any
      material respect.

    

    6.6 Each
      Debtor, at its own expense, will obtain and maintain in force insurance policies
      covering losses or damage to those items of Collateral which constitute physical
      personal property, which insurance shall be of the types customarily insured
      against by companies in the same or similar business, similarly situated, in
      such amounts (with such deductible amounts) as is customary for such companies
      under the same or similar circumstances, similarly situated. Debtors shall
      make
      the Collateral Agent a loss payee thereon to the extent of its interest in
      the
      Collateral. Collateral Agent is hereby irrevocably (until the Obligations are
      paid in full) appointed each Debtor’s attorney-in-fact to endorse any check or
      draft that may be payable to such Debtor as proceeds of such insurance so that
      Collateral Agent may collect the proceeds payable for any loss under such
      insurance. The proceeds of such insurance, less any costs and expenses incurred
      or paid by Collateral Agent in the collection thereof, shall be applied either
      toward the cost of the repair or replacement of the items damaged or destroyed,
      or on account of any sums secured hereby, whether or not then due or
      payable.

    

    6.7 Collateral
      Agent may, at its option, and without any obligation to do so, pay, perform
      and
      discharge any and all amounts, costs, expenses and liabilities herein agreed
      to
      be paid or performed by Debtor.  Upon Debtor’s failure to do so, all
      amounts expended by Collateral Agent in so doing shall become part of the
      Obligations secured hereby, and shall be immediately due and payable by Debtor
      to Collateral Agent upon demand and shall bear interest at the lesser of 15%
      per
      annum or the highest legal amount from the dates of such expenditures until
      paid.

    

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

    6.8 Upon
      the request of Collateral Agent, Debtors will furnish to Collateral Agent within
      five (5) business days thereafter, or to any proposed assignee of this Security
      Agreement, a written statement in form reasonably satisfactory to Collateral
      Agent, duly acknowledged, certifying the amount of the principal and interest
      and any other sum then owing under the Obligations, whether to its knowledge
      any
      claims, offsets or defenses exist against the Obligations or against this
      Security Agreement, or any of the terms and provisions of any other agreement
      of
      Debtors securing the Obligations. In connection with any assignment by
      Collateral Agent of this Security Agreement, each Debtor hereby agrees to cause
      the insurance policies required hereby to be carried by such Debtor, if any,
      to
      be endorsed in form satisfactory to Collateral Agent or to such assignee, with
      loss payable clauses in favor of such assignee, and to cause such endorsements
      to be delivered to Collateral Agent within ten (10) calendar days after request
      therefor by Collateral Agent.

    

    6.9 Each
      Debtor will, at its own expense, make, execute, endorse, acknowledge, file
      and/or deliver to the Collateral Agent from time to time such vouchers,
      invoices, schedules, confirmatory assignments, conveyances, financing
      statements, transfer endorsements, powers of attorney, certificates, reports
      and
      other reasonable assurances or instruments and take further steps relating
      to
      the Collateral and other property or rights covered by the security interest
      hereby granted, as the Collateral Agent may reasonably require to perfect its
      security interest hereunder.

    

    6.10 Debtors
      represent and warrant that they are the true and lawful exclusive owners of
      the
      Collateral, free and clear of any liens and encumbrances.

    

    6.11 Each
      Debtor hereby agrees not to divest itself of any right under the Collateral
      except as permitted herein absent prior written approval of the Collateral
      Agent, except to a subsidiary organized and located in the United States on
      prior notice to Collateral Agent provided the Collateral remains subject to
      the
      security interest herein described.

     

    6.12 Each
      Debtor shall cause each Subsidiary of such Debtor in existence on the date
      hereof and each Subsidiary not in existence on the date hereof to execute and
      deliver to Collateral Agent promptly and in any event within 10 days after
      the
      formation, acquisition or change in status thereof (A) a guaranty guaranteeing
      the Obligations and (B) if requested by Collateral Agent, a security and pledge
      agreement substantially in the form of this Agreement together with (x)
      certificates evidencing all of the capital stock of each Subsidiary of and
      any
      entity owned by such Subsidiary, (y) undated stock powers executed in blank
      with
      signatures guaranteed, and (z) such opinion of counsel and such approving
      certificate of such Subsidiary as Collateral Agent may reasonably request in
      respect of complying with any legend on any such certificate or any other matter
      relating to such shares and (C) such other agreements, instruments, approvals,
      legal opinions or other documents reasonably requested by Collateral Agent
      in
      order to create, perfect, establish the first priority of or otherwise protect
      any lien purported to be covered by any such pledge and security agreement
      or
      otherwise to effect the intent that all property and assets of such Subsidiary
      shall become Collateral for the Obligations. For purposes of this Agreement,
      “Subsidiary”
      means, with respect to any entity at any date, any corporation, limited or
      general partnership, limited liability company, trust, estate, association,
      joint venture or other business entity) of which more than 50% of
      (A) the outstanding capital stock having (in the absence of contingencies)
      ordinary voting power to elect a majority of the board of directors or other
      managing body of such entity, (B) in the case of a partnership or limited
      liability company, the interest in the capital or profits of such partnership
      or
      limited liability company or (C) in the case of a trust, estate,
      association, joint venture or other entity, the beneficial interest in such
      trust, estate, association or other entity business is, at the time of
      determination, owned or controlled directly or indirectly through one or more
      intermediaries, by such entity. Annex
      I annexed hereto contains a list of all Subsidiaries of the Debtors as of the
      date of this Agreement.

    

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

    7.    Power
      of Attorney.

    

    At
      any time an Event of Default exists or has occurred, each Debtor hereby
      irrevocably constitutes and appoints the Collateral Agent as the true and lawful
      attorney of such Debtor, with full power of substitution, in the place and
      stead
      of such Debtor and in the name of such Debtor or otherwise, at any time or
      times, in the discretion of the Collateral Agent, to take any action and to
      execute any instrument or document which the Collateral Agent may deem necessary
      or advisable to accomplish the purposes of this Agreement. This power of
      attorney is coupled with an interest and is irrevocable until the Obligations
      are satisfied.

    

    8.    Performance
      By The Collateral Agent.

    

    If
      a Debtor fails to perform any material covenant, agreement, duty or obligation
      of such Debtor under this Agreement, the Collateral Agent may, after any
      applicable cure period, at any time or times in its discretion, take action
      to
      effect performance of such obligation. All reasonable expenses of the Collateral
      Agent incurred in connection with the foregoing authorization shall be payable
      by Debtors as provided in Paragraph 12.1 hereof. No discretionary right, remedy
      or power granted to the Collateral Agent under any part of this Agreement shall
      be deemed to impose any obligation whatsoever on the Collateral Agent with
      respect thereto, such rights, remedies and powers being solely for the
      protection of the Collateral Agent.

    

    9.    Event
      of Default.

    

    An
      event of default ("Event of Default") shall be deemed to have occurred hereunder
      upon the occurrence of any event of default as defined and described in this
      Agreement, in the Debentures, the Securities Purchase Agreement, and any other
      agreement to which Debtor and a Lender are parties. Upon and after any Event
      of
      Default, after the applicable cure period, if any, any or all of the Obligations
      shall become immediately due and payable at the option of the Collateral Agent,
      for the benefit of the Lenders, and the Collateral Agent may dispose of
      Collateral as provided below. A default by Debtor of any of its material
      obligations pursuant to this Agreement and any of the Transaction Documents
      (as
      defined in the Securities Purchase Agreement) shall be an Event of Default
      hereunder and an “Event of Default” as defined in the Debentures, and Securities
      Purchase Agreement.

    

    10.    Disposition
      of Collateral.

    

    Upon
      and after any Event of Default which is then continuing,

    

    10.1 The
      Collateral Agent may exercise its rights with respect to each and every
      component of the Collateral, without regard to the existence of any other
      security or source of payment for the Obligations. In addition to other rights
      and remedies provided for herein or otherwise available to it, the Collateral
      Agent shall have all of the rights and remedies of a lender on default under
      the
      Uniform Commercial Code then in effect in the State of New York.

    

    10.2 If
      any notice to Debtors of the sale or other disposition of Collateral is required
      by then applicable law, five business (5) days prior written notice (which
      Debtors agree is reasonable notice within the meaning of Section 9.612(a) of
      the
      Uniform Commercial Code) shall be given to Debtors of the time and place of
      any
      sale of Collateral which Debtors hereby agree may be by private sale. The rights
      granted in this Section are in addition to any and all rights available to
      Collateral Agent under the Uniform Commercial Code.

    

    10.3 The
      Collateral Agent is authorized, at any such sale, if the Collateral Agent deems
      it advisable to do so, in order to comply with any applicable securities laws,
      to restrict the prospective bidders or purchasers to persons who will represent
      and agree, among other things, that they are purchasing the Collateral for
      their
      own account for investment, and not with a view to the distribution or resale
      thereof, or otherwise to restrict such sale in such other manner as the
      Collateral Agent deems advisable to ensure such compliance. Sales made subject
      to such restrictions shall be deemed to have been made in a commercially
      reasonable manner.

    

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

    10.4 All
      proceeds received by the Collateral Agent for the benefit of the Lenders in
      respect of any sale, collection or other enforcement or disposition of
      Collateral, shall be applied (after deduction of any amounts payable to the
      Collateral Agent pursuant to Paragraph 12.1 hereof) against the Obligations
      pro
      rata among the Lenders in proportion to their interests in the Obligations.
      Upon
      payment in full of all Obligations, Debtors shall be entitled to the return
      of
      all Collateral, including cash, which has not been used or applied toward the
      payment of Obligations or used or applied to any and all costs or expenses
      of
      the Collateral Agent incurred in connection with the liquidation of the
      Collateral (unless another person is legally entitled thereto). Any assignment
      of Collateral by the Collateral Agent to Debtors shall be without representation
      or warranty of any nature whatsoever and wholly without recourse. To the extent
      allowed by law, each Lender may purchase the Collateral and pay for such
      purchase by offsetting up to such Lender’s pro rata portion of the purchase
      price with sums owed to such Lender by Debtors arising under the Obligations
      or
      any other source.

    

    11. Waiver
      of Automatic Stay.
      Debtor acknowledges and agrees that should a proceeding under any bankruptcy
      or
      insolvency law be commenced by or against Debtor, or if any of the Collateral
      should become the subject of any bankruptcy or insolvency proceeding, then
      the
      Collateral Agent should be entitled to, among other relief to which the
      Collateral Agent or Lenders may be entitled under the Note, Securities Purchase
      Agreement and any other agreement to which the Debtor, Lenders or Collateral
      Agent are parties, (collectively "Loan Documents") and/or applicable law, an
      order from the court granting immediate relief from the automatic stay pursuant
      to 11 U.S.C. Section 362 to permit the Collateral Agent to exercise all of
      its
      rights and remedies pursuant to the Loan Documents and/or applicable law. Debtor
      EXPRESSLY WAIVES THE BENEFIT OF THE AUTOMATIC STAY IMPOSED BY 11 U.S.C. SECTION
      362. FURTHERMORE, Debtor EXPRESSLY ACKNOWLEDGES AND AGREES THAT NEITHER 11
      U.S.C. SECTION 362 NOR ANY OTHER SECTION OF THE BANKRUPTCY CODE OR OTHER STATUTE
      OR RULE (INCLUDING, WITHOUT LIMITATION, 11 U.S.C. SECTION 105) SHALL STAY,
      INTERDICT, CONDITION, REDUCE OR INHIBIT IN ANY WAY THE ABILITY OF THE COLLATERAL
      AGENT TO ENFORCE ANY OF ITS RIGHTS AND REMEDIES UNDER THE LOAN DOCUMENTS AND/OR
      APPLICABLE LAW. Debtor hereby consents to any motion for relief from stay which
      may be filed by the Collateral Agent in any bankruptcy or insolvency proceeding
      initiated by or against Debtor, and further agrees not to file any opposition
      to
      any motion for relief from stay filed by the Collateral Agent. Debtor
      represents, acknowledges and agrees that this provision is a specific and
      material aspect of this Agreement, and that the Collateral Agent would not
      agree
      to the terms of this Agreement if this waiver were not a part of this Agreement.
      Debtor further represents, acknowledges and agrees that this waiver is
      knowingly, intelligently and voluntarily made, that neither the Collateral
      Agent
      nor any person acting on behalf of the Collateral Agent has made any
      representations to induce this waiver, that Debtor has been represented (or
      has
      had the opportunity to be represented) in the signing of this Agreement and
      in
      the making of this waiver by independent legal counsel selected by Debtor and
      that Debtor has had the opportunity to discuss this waiver with counsel. Debtor
      further agrees that any bankruptcy or insolvency proceeding initiated by Debtor
      will only be brought in the Federal Court within the Southern District of New
      York.

    

    12.    Miscellaneous.

    

    12.1 Expenses.
      Debtors shall pay to the Collateral Agent, on demand, the amount of any and
      all
      reasonable expenses, including, without limitation, attorneys' fees, legal
      expenses and brokers' fees, which the Collateral Agent may incur in connection
      with (a) sale, collection or other enforcement or disposition of Collateral;
      (b)
      exercise or enforcement of any of the rights, remedies or powers of the
      Collateral Agent hereunder or with respect to any or all of the Obligations
      upon
      breach or threatened breach; or (c) failure by Debtors to perform and observe
      any agreements of Debtors contained herein which are performed by the Collateral
      Agent.

    

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

    12.2 Waivers,
      Amendment and Remedies.
      No course of dealing by the Collateral Agent and no failure by the Collateral
      Agent to exercise, or delay by the Collateral Agent in exercising, any right,
      remedy or power hereunder shall operate as a waiver thereof, and no single
      or
      partial exercise thereof shall preclude any other or further exercise thereof
      or
      the exercise of any other right, remedy or power of the Collateral Agent. No
      amendment, modification or waiver of any provision of this Agreement and no
      consent to any departure by Debtors therefrom, shall, in any event, be effective
      unless contained in a writing signed by the Collateral Agent, and then such
      waiver or consent shall be effective only in the specific instance and for
      the
      specific purpose for which given. The rights, remedies and powers of the
      Collateral Agent, not only hereunder, but also under any instruments and
      agreements evidencing or securing the Obligations and under applicable law
      are
      cumulative, and may be exercised by the Collateral Agent from time to time
      in
      such order as the Collateral Agent may elect.

    

    12.3 Notices.
      All notices or other communications given or made hereunder shall be in writing
      and shall be personally delivered or deemed delivered the first business day
      after being faxed (provided that a copy is delivered by first class mail) to
      the
      party to receive the same at its address set forth below or to such other
      address as either party shall hereafter give to the other by notice duly made
      under this Section:

     

     

    
      	 	To Debtors:	Aprecia Inc.
              
              1065
                Avenue of Americas

              New
                York, NY 10018

              Fax:
                (212) 930-9725

            
	 	 	 
	 	With a copy by telecopier only to:	 
	 	 	
              Sichenzia
                Ross Friedman Ference LLP

              1065
                Avenue of Americas

              New
                York, NY 10018

              Attn:
                Marc Ross, Esq.

              Fax:
                (212) 930-9725

            
	 	 	 
	 	To Lenders:	To the addresses and telecopier numbers
              set
              forth
              on
                Schedule A

            
	 	 	 
	 	To the Collateral Agent:	Michael Hartstein
	 	 	 
	 	With a copy by telecopier
              only
              to:	
              Grushko
                & Mittman, P.C.

              551
                Fifth Avenue, Suite 1601

              New
                York, New York 10176

              Fax:
                (212) 697-3575

            
	 	 	 
	 	 	 

    

     

       

    
      
         

      

      
        9

        
          

        

      

      
         

      

    

     

    Any
      party may change its address by written notice in accordance with this
      paragraph.

    

    12.4 Term;
      Binding Effect.
      This Agreement shall (a) remain in full force and effect until payment and
      satisfaction in full of all of the Obligations; (b) be binding upon each Debtor,
      and its successors and permitted assigns; and (c) inure to the benefit of the
      Collateral Agent, for the benefit of the Lenders and their respective successors
      and assigns. 

    

    12.5 Captions.
      The captions of Paragraphs, Articles and Sections in this Agreement have been
      included for convenience of reference only, and shall not define or limit the
      provisions hereof and have no legal or other significance
      whatsoever.

    

    12.6 Governing
      Law; Venue; Severability. This Agreement shall be governed by and construed
      in accordance with the laws of the State of New York without regard to conflicts
      of laws principles that would result in the application of the substantive
      laws
      of another jurisdiction, except to the extent that the perfection of the
      security interest granted hereby in respect of any item of Collateral may be
      governed by the law of another jurisdiction. Any legal action or proceeding
      against a Debtor with respect to this Agreement may be brought in the courts
      in
      the State of New York or of the United States for the Southern District of
      New
      York, and, by execution and delivery of this Agreement, each Debtor hereby
      irrevocably accepts for itself and in respect of its property, generally and
      unconditionally, the jurisdiction of the aforesaid courts. Each Debtor hereby
      irrevocably waives any objection which they may now or hereafter have to the
      laying of venue of any of the aforesaid actions or proceedings arising out
      of or
      in connection with this Agreement brought in the aforesaid courts and hereby
      further irrevocably waives and agrees not to plead or claim in any such court
      that any such action or proceeding brought in any such court has been brought
      in
      an inconvenient forum. If any provision of this Agreement, or the application
      thereof to any person or circumstance, is held invalid, such invalidity shall
      not affect any other provisions which can be given effect without the invalid
      provision or application, and to this end the provisions hereof shall be
      severable and the remaining, valid provisions shall remain of full force and
      effect.

    

    12.7 Entire
      Agreement.
      This Agreement contains the entire agreement of the parties and supersedes
      all
      other agreements and understandings, oral or written, with respect to the
      matters contained herein.

    

    12.8 Counterparts/Execution.
      This Agreement may be executed in any number of counterparts and by the
      different signatories hereto on separate counterparts, each of which, when
      so
      executed, shall be deemed an original, but all such counterparts shall
      constitute but one and the same instrument. This Agreement may be executed
      by
      facsimile signature and delivered by facsimile transmission.

    

    13.     Intercreditor
      Terms.
      As between the Lenders, any distribution under paragraph 10.4 shall be made
      proportionately based upon the remaining principal amount (plus accrued and
      unpaid interest) to each as to the total amount then owed to the Lenders as
      a
      whole. The rights of each Lender hereunder are pari
      passu
      to the rights of the other Lenders hereunder. Any recovery hereunder shall
      be
      shared ratably among the Lenders according to the then remaining principal
      amount owed to each (plus accrued and unpaid interest) as to the total amount
      then owed to the Lenders as a whole. 

    

    14.     Termination;
      Release.
      When the Obligations have been indefeasibly paid and performed in full
or
      all
      outstanding Convertible Debentures have been converted to common stock pursuant
      to the terms of the Convertible Debentures and the Securities Purchase
      Agreements,
      this Agreement shall terminate, and the Collateral Agent, at the request and
      sole expense of the Debtors, will execute and deliver to the Debtors the proper
      instruments (including UCC termination statements) acknowledging the termination
      of the Security Agreement, and duly assign, transfer and deliver to the Debtors,
      without recourse, representation or warranty of any kind whatsoever, such of
      the
      Collateral, including, without limitation, Securities and any Additional
      Collateral, as may be in the possession of the Collateral Agent.

    

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

    15.    Collateral
      Agent.

    

    15.1 Collateral
      Agent Powers.
      The powers conferred on the Collateral Agent hereunder are solely to protect
      its
      interest (on behalf of the Lenders) in the Collateral and shall not impose
      any
      duty on it to exercise any such powers.

    

    15.2 Reasonable
      Care.
      The Collateral Agent is required to exercise reasonable care in the custody
      and
      preservation of any Collateral in its possession; provided, however, that the
      Collateral Agent shall be deemed to have exercised reasonable care in the
      custody and preservation of any of the Collateral if it takes such action for
      that purposes as any owner thereof reasonably requests in writing at times
      other
      than upon the occurrence and during the continuance of any Event of Default,
      but
      failure of the Collateral Agent, to comply with any such request at any time
      shall not in itself be deemed a failure to exercise reasonable
      care.

    

    

    

    

    

    

    [THIS
      SPACE INTENTIONALLY LEFT BLANK]

    

    
      
         

      

      
        11

        
          

        

      

      
         

      

    

    IN
      WITNESS WHEREOF, the
      undersigned have executed and delivered this Security Agreement, as of the
      date
      first written above.

     

     

    
      	"DEBTOR"
              
              APRECIA
                INC.     

              a
                Delaware corporation

            	
              "THE
                COLLATERAL AGENT"

              MICHAEL
                HARTSTEIN

            
	 	 
	 By:
              _____________________________________ 	 _____________________________________
	 Its:
              _____________________________________	 
	 	 
	 “SUBSIDIARY”	“SUBSIDIARY” 
	 	 
	 By:
              _____________________________________ 	 By:______________________________________
	 Its:
              _____________________________________	 Its:
              ______________________________________
	 	 
	
               APPROVED
                BY
                “LENDERS”:

            
	 	 
	______________________________________  	_______________________________________
	 ALPHA CAPITAL
              AKTIENGESELLSCHAFT	 DOUBLE U MASTER FUND L.P.
	 	 
	
              _______________________________________

              TOBANNA ENTERPRISES CORP.

            	
              _______________________________________

              CMS CAPITAL

            

    

     

    

    This
      Security Agreement may be signed by facsimile signature
      and

    
      
         

      

      
        12

        
          

        

      

      
         

      

    

    SCHEDULE
      A TO SECURITY AGREEMENT

    

    
      	
              LENDER

            	
              PRINCIPAL
                AMOUNT OF DEBENTURE

            
	
              ALPHA
                CAPITAL AKTIENGESELLSCHAFT

              Pradafant
                7

              9490
                Furstentums

              Vaduz,
                Lichtenstein

              Fax:
                011-42-32323196

            	
              $250,000.00

            
	
              DOUBLE
                U MASTER FUND L.P.

              C/o
                Navigator Management Ltd.

              Harbor
                House, Waterfront Drive

              P.O.
                Box 972

              Road
                Town, Tortola

              British
                Virgin Islands

              Attn:
                Murray Todd

              Fax:
                (284) 494-4771

            	
              $100,000.00

            
	
              TOBANNA
                ENTERPRISES CORP.

              24
                Hazanchanim Street, Apt. #26

              Tel
                Aviv, Israel 69270

              Fax:
                011-972-3-648-6948

            	
              $125,000.00

            
	
              CMS
                CAPITAL

              9612
                Ventura Blvd., Suite 108

              Panorama
                City, CA 91402

              Attn:
                Judah Zavdi

              Fax:
                (818) 907-3372

            	
              $25,000.00

            
	
              TOTALS

            	
              $500,000.00

            

    

    

    
      
         

      

      
        13

        
          

        

      

      
         

      

    

    ANNEX
      I

     

    TO

     

    SECURITY
      AGREEMENT

     

    PLEDGE
      AMENDMENT

     

    This
      Pledge Amendment, dated _________ __ 200_, is delivered pursuant to Section
      4.3
      of the Security Agreement referred to below. The undersigned hereby agrees
      that
      this Pledge Amendment may be attached to the Security Agreement, dated March
      ____, 2006, as it may heretofore have been or hereafter may be amended,
      restated, supplemented or otherwise modified from time to time and that the
      shares listed on this Pledge Amendment shall be hereby pledged and assigned
      to
      Collateral Agent and become part of the Collateral referred to in such Security
      Agreement and shall secure all of the Obligations referred to in such Security
      Agreement.

     

    
      	
              NAME
                OF ISSUER

            	
              JURISDICTION
                OF INCORPORATION

            	
              PERCENT
                OWNED BY PARENT

            	
              NUMBER
                OF SHARES

            	
              CLASS

            	
              CERTIFICATE
                NUMBER(S)

            
	 	 	 	 	 	 
	 	 	 	 	 	 
	 	 	 	 	 	 
	 	 	 	 	 	 
	 	 	 	 	 	 
	 	 	 	 	 	 
	 	 	 	 	 	 
	 	 	 	 	 	 
	 	 	 	 	 	 

    

    

    

    APRECIA
      INC.

    

    

    

    By: _____________________________________

     

     

    

    
      
         

      

      
        14

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00113-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00113-of-00352.parquet"}]]