Document:

Unassociated Document

     

    

      Service
        Agreement

      

      This
        Service “Agreement”,
        effective as of March 1, 2006, by and between IsoRay, Inc. (“Manufacturer”),
        a
        Minnesota corporation having offices at 350 Hill Street, Suite 106, Richland,
        WA
        99354 and Advanced Care Medical, Inc. (“ACM”,
        a
        Connecticut corporation having a principal business office at 115 Hurley
        Road,
        Building 3A, Oxford CT 06478.

      

      Recitals

      

      Whereas,
        Manufacturer sells to the medical community devices known as “Brachytherapy
        Seeds”
        (specifically Cesium- 131 seeds) (the “Product”);

      

      Whereas,
        Manufacturer wants to contract with ACM to provide:

      

      1)
        services to Manufacturer pursuant to a specified patient treatment plan or
        written Physician’s
        Order
        specified by Manufacturer’s
        customers and in compliance with a specified patient treatment plan or written
        Physician’s
        Order.
        These service specifications are included in Exhibit A (the “Directions”),
        and

      

      2)
        other
        Brachytherapy Seeds services to Manufacturer included in Exhibit A as specified
        by Manufacturer’s
        customers (together, with the Directions, the “Services”);
        and

      

      Whereas,
        ACM desires to provide these Services for Manufacturer, in accordance with
        the
        terms and conditions of this Agreement; and

      

      Whereas,
        in connection with providing the Services, and included in the cost thereof,
        ACM
        will provide all products and supplies necessary to the performance of the
        Services other than the Product, such as, where applicable, ACM’s
        strands
        for seed insertion, ACM’s
        Seed-Lock pre-plugged needle assemblies, spacers, and other supplies used
        or
        consumed in performing the Services (the “ACM
        Products”;
        except
        when otherwise specified below, all references in this Agreement to the Services
        shall include the relevant ACM Products);

      

      Now,
        therefore, for good and valuable consideration, the receipt and sufficiency
        of
        which is hereby acknowledged, the parties agree as follows:

      

      	1.  	
              Terms
                and Conditions of the Sale

            

      

      	1.1  	
              On
                the terms and subject to the conditions set forth in this Agreement,
                ACM
                shall provide to Manufacturer (as it shall relate to
                Manufacturer’s
                Product list), when and as requested by the Manufacturer, the Services
                set
                forth in Exhibit A hereto and made a part hereof, including the relevant
                ACM Products. The term of this Agreement shall commence on March
                1, 2006
                (the “Commencement
                Date”),
                and shall continue thereafter for a period of one year (the “Initial
                Term”).
                At the end of the Initial Term, this Agreement will automatically
                extend
                for additional (1) year unless otherwise terminated by written notice
                from
                one party no less than 60 days prior to the expiration of the Initial
                Term. For purposes of this Agreement, the Initial Term, and any extension
                thereof, shall be referred to as the “Term”.

            

      	 	 

      	1.2  	
              The
                purchase prices to be paid for the Services provided by ACM and accepted
                by Manufacturer, in accordance with the provisions of this Agreement,
                are
                set forth in Exhibit B attached hereto. 

            

      

      Services
        will be invoiced to Manufacturer when performed and are due and payable within
        30 days thereof to ACM. The unpaid balance of all payments received after
        the
        due date shall incur a carrying charge of 1.5% per month. In the event there
        is
        a dispute over an amount due, the prevailing party is entitled to recover
        their
        reasonable attorney fees, court costs and other costs associated with the
        dispute. 

      

      The
        parties acknowledge that there may be occasional cancellations by customers
        after the Products have arrived at ACM. Manufacturer agrees that ACM shall
        be
        entitled to payment for services actually performed by ACM, if the customer
        cancels an order for reasons other than ACM’s
        failure
        to perform in accordance with its obligations under this Agreement. Manufacturer
        will inform ACM as soon as practicable after learning of cancellation of
        an
        order for which the Products have been shipped to ACM by Manufacturer hereunder.
        If at the time ACM is notified of cancellation, ACM has loaded the Products
        into
        ACM’s
        pre-loaded and/or stranded products, ACM shall be entitled to full payment
        for
        that order. If the Products have not been loaded, ACM will not perform or
        be
        paid for the Services on those Products. In either case, ACM will hold the
        Products for disposition or shipment according to Manufacturer’s
        instructions. Shipping requested by Manufacturer will be at ACM’s
        cost if
        ACM is to be paid for the order, and at Manufacturer’s
        cost
        otherwise.

      

      	2.  	
              Compliance
                with all Applicable Laws

            

      

      	2.1  	
              During
                the Term, ACM shall comply, in all material respects, with all applicable
                laws, ordinances, rules, regulations, orders, licenses, permits and
                other
                requirements, now or hereafter in effect, of any applicable governmental
                authority with respect to the delivery of the Services, including
                without
                limitation all requirements regarding labeling and traceability of
                the
                Products as processed by ACM, as such requirements arise out of or
                in
                connection with the performance of the Services. ACM shall provide
                all
                reasonable cooperation to Manufacturer in connection with
                Manufacturer’s
                compliance with any law, ordinance, rule, regulation, order, license,
                permit or other requirement regarding the provision of the Services
                and
                the Products.

            

      

      	2.2  	
              During
                the Term, Manufacturer shall comply, in all material respects, with
                all
                applicable laws, ordinances, rules, regulations, orders, licenses,
                permits
                and other requirements, now or hereafter in effect, of any applicable
                governmental authority with respect to the delivery of the Products
                as
                manufactured by the Manufacturer. Manufacturer shall provide all
                reasonable cooperation to ACM in connection with ACM’s
                compliance with any law, ordinance, rule, regulation, order, license,
                permit or other requirement regarding the provision of the Services
                and
                the Products.

            

      

      	3.  	
              Representations
                and Warranties

            

      

      	3.1  	
              ACM
                Representations, Warranties and
                Covenants.

            

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      ACM
        hereby represents, warrants and covenants to Manufacturer as
        follows:

      

      	a.  	
              It
                is a corporation duly organized and validly existing under the laws
                of the
                state of Connecticut. ACM has full corporate power to conduct its
                affairs
                as currently conducted and contemplated hereunder. All necessary
                corporate
                action has been taken to enable it to execute and deliver this Agreement
                and perform its obligations hereunder. 

            

      

      	b.  	
              That
                the services provided will be of a professional quality, conforming,
                in
                all material respects, to generally accepted industry standards and
                practices for similar services, and, in the case of the ACM Products,
                to
                ACM’s
                specifications thereof and to any applicable regulatory requirements
                (e.g.
                compliance with 510(k) requirements). ACM, without any expense to
                Manufacturer, shall obtain all required licenses and permits, and
                shall
                obey and abide by all known laws, regulations, ordinances and other
                rules
                of the United States or the state in which the Products are being
                provided, or any other duly constituted public authority as applicable
                to
                this Agreement, applicable to the performance of the Services or
                to the
                use or sale of the ACM Products. If ACM fails to perform such Services
                as
                warranted hereunder and ACM receives written notice specifying in
                detail
                the nature of the default during the thirty (30) day period after
                the
                completion of such Services, ACM will, at Manufacturer’s
                option, either re-perform the Services at ACM’s
                expense or credit the price of the affected Services. Except for
                ACM’s
                indemnity obligations hereinafter set forth, and Manufacturer’s
                termination rights, the foregoing are Manufacturer’s
                sole and exclusive remedies for breach of this warranty by
                ACM.

            

      

      	3.2  	
              Manufacturer
                Representations, Warranties and
                Covenants.

            

      

      Manufacturer
        hereby represents, warrants and covenants to ACM as follows:

      

      	a.  	
              It
                is a corporation duly organized and validly existing under the laws
                of the
                State of its incorporation, will full power to conduct its affairs
                as
                currently conducted and contemplated hereunder. All necessary corporate
                action has been taken to enable it to execute and deliver this Agreement
                and perform its obligations hereunder.

            

      

      	b.  	
              That
                the Products provided will be of a professional quality, conforming,
                in
                all material respects, to generally accepted industry standards and
                practices for similar products, and shall comply with
                Manufacturer’s
                published specifications and ISO 2919-199E, Classification C53X42.
                The
                Manufacturer, without any expense to ACM, shall obtain all required
                licenses and permits, and shall obey and abide by all applicable
                laws,
                regulations (e.g. compliance with 510(k) requirements), ordinances
                and
                other rules of the United States or the state in which the Products
                are
                being provided, or any other duly constituted public authority as
                applicable to this Agreement, other than laws, regulations, etc.
                which are
                applicable by reason of ACM’s
                performance of the Services.

            

      	 	 

      	4.  	
              Indemnification

            

      

      	4.1  	
              By
                Manufacturer: Manufacturer shall indemnify, defend and hold harmless
                ACM,
                and its affiliates, parent, subsidiaries, officers, directors,
                shareholders, employees and agents, from and against any and all
                claims,
                actions, or demands (including without limitation reasonable fees
                and
                expenses of legal counsel incurred in settling or defending any such
                claim, action or demand) arising out of or resulting, in whole or
                in part
                from Manufacturer’s
                (i) breach of any representation, warranty, obligation or covenant
                of
                Manufacturer set forth in this Agreement, or (ii) gross negligence
                with
                respect to its provision of the Products or willful misconduct of
                Manufacturer or Manufacturer’s
                employees, agents and contractors, or (iii) any product liability
                claims
                (whether sounding negligence, strict liability or otherwise) relating
                to
                personal injury or death allegedly arising out of the use of the
                Products,
                except product liability claims arising out of or based on the Services
                or
                the ACM Products provided in connection therewith.
                

            

      

      	4.2  	
              By
                ACM: ACM shall indemnify, defend and hold harmless Manufacturer,
                and its
                officers, directors, shareholders, employees and agents from and
                against
                any and all claims, actions, or demands (including without limitation
                reasonable fees and expenses of legal counsel incurred in settling
                or
                defending any such claim, action or demand) arising out of or resulting
                from ACM’s
                (i) breach of any representation, warranty, obligation or covenant
                of ACM
                set forth in this Agreement, or (ii) willful misconduct or gross
                negligence with respect to the Services; or (iii) any product liability
                claims (whether sounding in negligence, strict liability or otherwise)
                relating to personal injury or death allegedly arising out of the
                use of
                the Products, to the extent such liability claims arise out of or
                are
                based on the Services or the ACM Products provided in connection
                therewith. 

            

      

      	4.3  	
              The
                foregoing indemnities are conditioned on prompt written notice of
                any
                claim, action, or demand for which indemnity is claimed; complete
                control
                of the defense (and, if applicable, settlement) thereof by the
                indemnifying party (provided, that any such settlement shall leave
                the
                indemnified party with no liability whatsoever and shall not admit
                to any
                wrongdoing on the part of the indemnified party); and cooperation
                of the
                other party in such defense. 

            

      

      	4.4  	
              All
                indemnity obligations under this Agreement (i) shall apply to claims
                arising as a result of this agreement, whether such claims arise
                before or
                after the termination of this Agreement, and (ii) shall survive the
                termination or expiration of this
                Agreement.

            

      

      	4.5  	
              During
                the term of this Agreement, Manufacturer shall carry and maintain
                in full
                force and effect, at Manufacturer’s
                own expense, appropriate comprehensive general and product liability
                insurance coverage, in the amount of $1 million per occurrence, $2
                million
                aggregate, and shall take all necessary action to name ACM as an
                additional insured with respect to such policies. Manufacturer agrees,
                to
                deliver certificates of such insurance to ACM, at ACM’s
                written request and, in any event, not less than ten (10) days prior
                to
                the expiration of any such policy. Such insurance shall not be cancelable
                except upon ten (10) days written notice to
                ACM.

            

      	 	 

      	4.6  	
              During
                the term of this Agreement, ACM shall carry and maintain in full
                force and
                effect, at ACM’s
                own expense, appropriate comprehensive general and product liability
                insurance coverage, in the amount of $1 million per occurrence, $2
                million
                aggregate, and shall take all necessary action to name Manufacturer
                as an
                additional insured with respect to such policies. ACM agrees, to
                deliver
                certificates of such insurance to ACM at Manufacturer’s
                written request, and in any event not less than ten (10) days prior
                to the
                expiration of any such policy. Such insurance shall not be cancelable
                except upon ten (10) days written notice to Manufacturer. Such coverage
                shall cover all claims arising out of Services or ACM Products provided
                under this Agreement, whether such claims arise during or after the
                Term
                hereof. 

            

      

      	5.  	
              Limitation
                of Liability

            

      

      Other
        than the indemnity provisions above and the warranty and other remedies
        expressly specified herein, ACM’s
        and its
        affiliates’
        and
        parent’s
        entire
        and collective liability arising out of or relating to this Agreement, including
        without limitation on account of performance or nonperformance of obligations
        hereunder, regardless of the form of the cause of action, whether in contract,
        tort (including without limitation gross negligence but not including
        intentional torts, fraud, or bad faith), statute or otherwise, shall in no
        event
        exceed the amounts paid to ACM under this Agreement for the Services. EXCEPT
        AS
        SPECIFIED IN THIS AGREEMENT, NEITHER PARTY NOR ITS AFFILIATES OR PARENTS
        SHALL,
        UNDER ANY CIRCUMSTANCES, BE LIABLE TO THE OTHER PARTY OR ITS AFFILIATES OR
        PARENTS FOR ANY CONSEQUENTIAL, INCIDENTIAL, INDIRECT, PUNITIVE, EXEMPLARY
        OR
        SPECIAL DAMAGES OF ANY NATURE WHATSOEVER, OR FOR ANY DAMAGES ARISING OUT
        OF OR
        IN CONNECTION WITH ANY DELAYS, LOSS OF PROFIT, INTERRUPTION OF SERVICE OR
        LOSS
        OF BUSINESS OR ANTICIPATORY PROFITS, EVEN IF A PARTY OR ITS AFFILIATES HAVE
        BEEN
        APPRISED OF THE LIKELIHOOD OF SUCH DAMAGES OCCURRING. No action, regardless
        of
        form, arising out of this Agreement may be brought by either party more than
        two
        (2) years after the cause of action has accrued.

      

      	6.  	
              Confidential
                Information

            

      

      	6.1  	
              Each
                of the parties hereto acknowledges that, from time to time during
                the
                Term, the parties hereto may come into the possession of confidential
                information of the other party relating to such party’s,
                operations, activities, intellectual property (including, without
                limitation, trade secrets and know-how), products and/or services,
                (collectively, the “Confidential
                Information”),
                and that such information is property valuable to the party that
                has
                developed it, and that the party that has developed it desires to
                retain
                it in confidence and withhold it from publication to others, and
                that such
                party has a legitimate business interest in such intent. Accordingly,
                each
                party hereby agrees that during the Term and thereafter, (a) it will
                not
                copy, communicate or disclose, in any manner, any of the Confidential
                Information of the other party, except internally or as otherwise
                provided
                herein, (b) it will use Confidential Information belonging to the
                other
                solely for the purpose(s) for which it was disclosed hereunder or
                otherwise as contemplated hereby, and (c) it will not disclose
                Confidential Information (including without limitation the terms
                and
                conditions of the Agreement) belonging to the other party, other
                than to
                its employees, consultants and/or other third parties reasonably
                requiring
                such Confidential Information who are bound by written obligations
                of
                nondisclosure and non-use; provided that the foregoing shall not
                restrict
                any disclosure by either party required by applicable law provided
                that
                the other party is given prompt written notice thereof and a reasonable
                opportunity to review such disclosure and, if applicable, seek a
                protective order or other method of limiting the scope of such disclosure.
                This provision will survive for a period of five (5) years after
                the date
                this Agreement is terminated, provided that the recipient’s
                obligations with respect to any particular Confidential Information
                will
                terminate at such earlier time as any of the exceptions set forth
                below in
                this Section 6.1 first apply. The term “Confidential
                Information”
                shall also include all information of each party’s
                affiliates, parents and subsidiaries which would qualify as Confidential
                Information if it belonged to such party.

            

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      
        	
              	Notwithstanding the foregoing, Confidential Information
                shall not include any information disclosed hereunder that, at the
                relevant time: (a) is or becomes available to the public without
                breach of
                this Agreement; (b) was previously known by the recipient without
                obligation of confidentiality; (c) is received from a third party
                without
                breach of any obligation of confidentiality; (d) is independently
                developed by recipient without reliance on information disclosed
                hereunder; (e) is approved for release by written authorization of
                the
                disclosing party (but only to the extent of such authorization);
                (f) can
                be readily determined by an examination of publicly-available products.
                Further, information relating to “Customers”
                of
                Brachytherapy Services is well known in the industry and does not
                constitute Confidential Information. ACM acknowledges that Manufacturer
                does not wish to be exposed to any Confidential Information relating
                to
                the design or manufacture of the ACM Products or to any confidential
                methods of providing the Services, unless absolutely necessary. Likewise,
                Manufacturer acknowledges that ACM does not wish to be exposed to
                any
                Confidential Information relating to the design or manufacture of
                Manufacturer’s
                products unless absolutely necessary. Accordingly, each party agrees
                not
                to disclose any such information to the other without the prior written
                consent of the recipient, after the recipient has received a written
                summary of the nature of the information which the other party proposes
                to
                disclose and of the reason disclosure is considered
                necessary.

      	6.2  	
              Each
                party hereto acknowledges that its unlawful disclosure of any Confidential
                Information of the other may give rise to irreparable injury to the
                other,
                or the owner of such information, inadequately compensable to damages.
                Accordingly, each party may seek and obtain injunctive relief against
                the
                breach or threatened breach of the foregoing undertakings, in addition
                to
                any other legal remedies which may be available without requirement
                of
                posting bond or other security.

            

      

      	6.3  	
              In
                no event shall a party be entitled to use any of the other’s
                Confidential Information, or any derivatives thereof, in connection
                with
                the sale or production of any products or services that are competitive
                with (direct or indirect) or similar to those products and services
                sold,
                produced, manufactured, offered for sale, designed or developed by
                the
                disclosing party or any of its affiliates or parent. Each party agrees
                to
                refrain from knowingly infringing, in any manner, directly or indirectly,
                on any Confidential Information of the other party (or any of its
                affiliates or parent), regardless of whether such Confidential Information
                has been registered, filed or recorded with the United States Patent
                and
                Trademark Office, or any similar federal, state or international
                agency or
                regulatory body. Each party further agrees that it shall comply with
                all
                obligations imposed on it by the United States Patent and Trademark
                Office
                or any similar federal, state or international agency or regulatory
                body
                with respect to the other party’s
                intellectual property rights. The obligations of this provision shall
                survive the termination of this Agreement (a) for the life of the
                relevant
                intellectual property rights, in the case of patents and trademarks,
                and
                (b) for the applicable period described in Section 6.1, in the case
                of
                Confidential Information. The foregoing restrictions shall not apply
                to
                the provision by Manufacturer of any of the Services pursuant to
                a
                subsequent agreement with ACM that permits Manufacturer to perform
                them.

            

      	 	 

      	6.4  	
              The
                obligations of each party set forth in this Section 6 shall be applicable
                to all of such party’s
                affiliates, subsidiaries, parent(s) and related entities, such that
                those
                parties shall be bound by the terms and conditions of this Section
                6 as if
                each was an original signatory to this Agreement.
                

            

      

      	6.5  	
              Protected
                Health Information. ACM acknowledges that individually-identifiable
                information concerning the patients scheduled to receive implants
                of the
                Products is “Protected
                Health Information”
                under 42 U.S.C. § 1320d, enacted by the Health Insurance Portability and
                Accountability Act of 1996 (“HIPAA”),
                and regulations promulgated thereunder, which Manufacturer and ACM
                are
                obligated to treat as confidential under such law and regulations,
                and
                which may also be covered by other confidentiality laws, rule, and
                regulations. ACM agrees as follows: (a) to maintain the confidentiality
                of
                all such patient information in compliance with HIPAA and applicable
                regulations thereunder, as the forgoing may now exist or hereafter
                be
                amended, and other applicable confidentiality laws, rules and regulations,
                for so long as such obligations apply; (b) comply with such reasonable
                or
                customary obligations with respect to such patient information, as
                may now
                or hereafter be imposed on Manufacturer by contract with its customers
                pursuant to HIPAA (e.g. under so-called Business Associate Agreements),
                provided that Manufacturer shall disclose to ACM in writing the nature
                of
                the obligations under each such agreement; and (c) require any of
                its
                agents or subcontractors who may become privy to such patient information
                hereunder to comply with the foregoing to the same extent ACM is
                obligated
                to do so, and include in its contracts with any such parties a clause
                comparable to this clause.

            

      

      	6.6  	
              Manufacturer
                acknowledges that an affiliate of ACM is currently engaged in the
                business
                of selling a product similar in nature, form and substance to the
                Product
                (“BrachySciences
                Business”).
                Manufacturer agrees that performance of the BrachySciences Business
                as it
                is conducted on the Commencement Date, and as may hereinafter be
                conducted, subject to this provision, shall not be limited or restricted
                by any of the provisions of this Agreement, however, notwithstanding
                the
                previous clause, ACM acknowledges and agrees that it is responsible
                for
                ensuring that all Confidential Information of Manufacturer is safeguarded
                in accordance with this Section 6, and that neither ACM nor any of
                its
                affiliates, including but not limited to the affiliate engaged in
                the
                BrachySciences Business, may use any Confidential Information of
                Manufacturer for any use whatsoever other than as required or expressly
                authorized by this Agreement. 

            

      

      	7.  	
              Termination

            

      

      	7.1  	
              Unless
                extended pursuant to Section 1.1 above, this Agreement shall terminate
                at
                the expiration of the Initial Term, subject to the provisions of
                Section
                7.4 below.

            

      	 	 

      	7.2  	
              Should
                either party commit a material breach of its obligations hereunder
                (except
                with respect to the failure of a party to promptly pay amounts due
                the
                other hereunder, in which instance, the party entitled to payment
                shall be
                entitled to terminate this Agreement upon 10 business days written
                notice
                to the other party unless the payment is made within that time),
                or should
                any of the representations or warranties of either party in this
                Agreement
                prove to be untrue in any material respect, the other party may,
                at its
                option, terminate this Agreement by providing thirty (30) days’
                prior written notice of termination, which notice shall identify
                and
                describe, in detail, the basis for such termination, which notice
                shall
                identify and describe, in detail, the basis for such termination.
                If,
                prior to expiration of such notice period the defaulting party cures
                such
                default, termination shall not take place. Notwithstanding, the foregoing,
                Manufacturer may terminate this Agreement on thirty days’
                notice if, at any time, ACM has availed itself of the right to cure
                breaches of this Agreement three or more times in any three-month
                period.
                

            

      

      	7.3  	
              Should
                either party admit in writing its inability to pay its debts generally
                as
                they become due, or make a general assignment for the benefit of
                creditors, or institute proceedings to be adjudicated a voluntary
                bankrupt, or consent to the filing of a petition of bankruptcy against
                it,
                or be adjudicated by a court of competent jurisdiction as bankrupt;
                or
                should either party seek reorganization under any bankruptcy act,
                or
                consent to the filing of a petition seeking such reorganization,
                or should
                either party have a decree entered against it by a court of competent
                jurisdiction appointing a receiver, liquidator, trustee, or assignee
                in a
                bankruptcy or insolvency covering all or substantially all of such
                party’s
                property or providing for the liquidation of such party’s
                property or business affairs; then the other party may, as its option
                and
                without notice, terminate this Agreement, effective
                immediately.

            

      

      	7.4  	
              Termination
                of this Agreement shall not relieve either party of their obligations
                (i)
                with respect to those provisions of this Agreement which by their
                express
                terms survive termination of this Agreement, or (ii) arising prior
                to the
                termination or expiration of this agreement, including, without
                limitation, the obligation of either party to satisfy any outstanding
                payment obligations due and payable to the
                other.

            

      

      	7.5  	
              Upon
                the termination of this Agreement, for any reason whatsoever, or
                as
                otherwise requested by either party, (i) ACM shall, within thirty
                (30)
                days thereof, return to Manufacturer all of Manufacturer’s
                written materials, specifications and the like relating to the Product,
                regardless of whether such material contains any Confidential Information,
                and (ii) Manufacturer shall, within thirty (30) days thereof, return
                to
                ACM all of ACM’s
                written materials, specifications and the like (including, without
                limitation, all extracts, notes, synopses, and copies thereof) in
                Manufacturer’s
                control, custody or possession regardless of whether such material
                contains any Confidential Information, except, in each case, one
                (1)
                archival copy which, if retained, shall be maintained in secure storage
                and shall be used solely for purposes of evidencing what materials
                of each
                party the other party possessed, and for prosecuting or defending
                actions
                related to this Agreement. Upon the request of the disclosing party,
                the
                receiving party shall provide written certification, executed by
                an
                authorized officer of such party, that all documents and materials
                relating the disclosing party’s
                Confidential Information in such party’s
                control or possession have either been returned to the disclosing
                party,
                or have been destroyed, except as provided above, and the receiving
                party
                is not in possession or control of any copies or other materials
                relating
                to the disclosing party’s
                Confidential Information except as provided
                above.

            

      	 	 

      	8.  	
              Independent
                Contractor Status

            

      

      	8.1  	
              Nothing
                herein shall be construed to create a partnership, joint venture,
                or
                agency relationship between the parties hereto. Neither party shall
                have
                the authority to bind the other party by any act, omission,
                representation, agreement or otherwise. Any employees, servants,
                agents,
                representatives or contractors of the parties shall be under the
                exclusive
                direction and control of each respective
                party.

            

      

      	9.  	
              Governing
                Law

            

      

      	9.1  	
              This
                Agreement shall be governed by, and construed and enforced in accordance
                with the laws of the State of
                Connecticut.

            

      

      	10.  	
              Dispute
                Resolution

            

       

      
        	10.1 	The parties shall follow these dispute resolution
                processes in connection with all disputes, controversies or claims,
                whether based on contract, tort, statute, fraud, misrepresentation
                or any
                other legal theory (hereinafter collectively “Disputes”),
                except as otherwise noted, arising out of or relating to this Agreement
                or
                the breach or alleged breach hereof. The parties will attempt to
                settle
                all Disputes through good faith negotiations. If those attempts fail
                to
                resolve the Dispute within forty-five (45) days of the date of initial
                demand for negotiation, the Dispute shall be settled by binding
                arbitration conducted in Connecticut in accordance with the then
                current
                Commercial Arbitration Rules of the American Arbitration Association
                (“AAA”).
                Selection of one neutral arbitrator by the parties shall be from
                the AAA
                Panel list in accordance with the appointment Rules of the AAA. Each
                party
                shall bear its own expenses, and the parties shall equally share
                the
                filing and other administrative fees of the AAA and the expenses
                of the
                arbitrator. Any award of the arbitrator shall be in writing, shall
                state
                the reasons for the award (including any findings of fact and conclusions
                of law) and shall explain the breakout of any damages awarded. Judgment
                upon an award may be entered in any Court having competent jurisdiction.
                The arbitrator shall not have the power to award damages in excess
                of
                actual damages, such as punitive damages and damages excluded under
                the
                LIMITATION OF LIABILITY Section of this Agreement. The Federal Arbitration
                Act, 9 U.S.C. Section 1 to 14, shall govern the interpretation and
                enforcement of this Section governing dispute resolution. The provisions
                of this Section 10 shall survive any termination of this
                Agreement.

      

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      
        	10.2	Notwithstanding the provisions of Section 10.1,
                neither a
                request or demand for arbitration, nor pendency of any such proceedings,
                shall forestall any pending notice of termination or toll any period
                for
                cure of a breach, nor shall the same preclude a party from terminating
                this contract pursuant to its terms. Arbitration may not be invoked,
                and
                no arbitrator may consider, any dispute as to terms of any extension,
                renewal or replacement of this Agreement or any decision by a party
                to
                withhold its consent or approval as to any matters as to which a
                specific
                provision of this Agreement requires such consent or approval, except
                as
                to matters where by the express terms hereof consent may not be
                unreasonably withheld. Nor must a party pursue arbitration in the
                event of
                a breach of its proprietary or intellectual property rights under
                law; in
                such case the aggrieved party may seek injunctive or other relief
                in any
                court of competent jurisdiction without recourse to the above procedure.
                In connection with a third-party claim, it may be that indemnification
                or
                other recourse can be claimed under this Agreement, or that the other
                party to this Agreement must or may be made a party to the third-party
                claim, or that other similar action is procedurally necessary or
                appropriate. In such case the indemnification, other recourse, or
                other
                action may be pursued in connection with the proceeding in which
                the
                third-party claim is pending without need for nay of the procedures
                contemplated by this Section 10.

      11.
         Notices

      

      
        	11.1 	All notices and other communications required
                or
                permitted to be given under this Agreement shall be in writing and
                shall
                be considered effective when deposited in the U.S. mail as registered
                mail, return receipt requested, postage prepaid, and addressed to
                the
                party at the address noted above, unless by such notice a different
                address shall have been designated in writing. Notice should be sent
                to
                the intended recipient as follows:

      If
        to
        Manufacturer:

      Keller
        Rohrback P.L.C.

      Suite
        900

      National
        Bank Plaza

      3101
        N.
        Central Avenue

      Phoenix,
        AZ 85012-2600

      Attention:
        Stephen Boatwright

      

      

      If
        to
        ACM:

      Advanced
        Care Medical, Inc.

      115
        Hurley Road

      Building
        3A

      Oxford,
        CT 06478

      Attn:
        Gary Lamoureux, President/CEO

       

      	12.  	
              Force
                Majeure

            

      

      
        	12.1	Neither party shall be in default if failure to
                perform
                any obligation hereunder is caused solely by supervening conditions
                beyond
                the party’s
                control, including acts of God, civil commotion, strikes, labor disputes,
                and governmental demands or requirements, provided, however, any
                delay in
                performance exceeding 120 days shall be grounds for terminating this
                Agreement by the non-defaulting
                party.

      	13.  	
              Severability

            

      

      
        	13.1
                	If any provision of this Agreement shall be held
                illegal,
                unenforceable, or in conflict with any law of a federal, state, or
                local
                government having jurisdiction over this Agreement, the validity
                of the
                remaining portions or provisions hereof shall not be affected
                thereby.

      	14.  	
              Headings

            

      

      
        	14.1 	The headings of the sections of this Agreement
                have been
                inserted for convenience of references
                only.

      

      

      	15.  	
              Entire
                Agreement; Construction

            

      

      
        	15.1 	This Agreement supersedes all prior Service Agreement(s)
                between the parties (and their affiliates) only to the extent specifically
                expressed in this document. Unless otherwise specifically stated
                herein,
                the terms, conditions, obligations and rights set forth in the prior
                Service Agreement(s) between the parties (and their affiliates) shall
                survive in full force and effect. Except as expressly provided herein,
                this Agreement shall not be amended except by written agreement signed
                by
                both parties. 

      

      

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

      	16.  	
              Miscellaneous

            

      

      
        	16.1	This Agreement shall be binding upon and inure
                to the
                benefit of the respective parties hereto and their successors and
                permitted assigns.

      
        	16.2 	The failure of either party to insist upon strict
                adherence to any term of this Agreement on any occasion shall not
                be
                construed as a waiver of or deprive either party of the right thereafter
                to insist upon strict adherence to that term or any other term of
                this
                Agreement. Any waiver signed by either party must be in writing and
                signed
                by a duly authorized representative of such
                party.

      
        	16.3  	The rights of the parties under and pursuant to
                this
                Agreement are personal to them, and the parties shall not assign
                or
                transfer this Agreement nor subcontract any portion of the services
                to be
                performed by them to any other person, firm, or corporation without
                the
                prior express written consent of the other party. Such consent shall
                be at
                the sole discretion of the other party and may be withheld for any
                reason.
                Any assignment of this Agreement without the other party’s
                prior written consent shall be void and of no
                effect

      IN
        WITNESS WHEREOF, the parties have caused the Agreement to be duly executed
        by
        their authorized representatives as set forth below:

      
        	
                Advanced Care Medical, Inc.

                By: /s/ Gary Lamoureux

                Name: Gary Lamoureux

                Title: President/CEO

                Date: 2/14/06

              	
                IsoRay, Inc.

                By: /s/ Roger E. Girard

                Name: Roger E. Girard

                Title: CEO/Chairman

                Date:
                  2/28/06

              

      

          

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      

      Exhibit
        A -
        The Directions

      

      Manufacturer
        will provide ACM a purchase order for each customer order.

      

      The
        customer patient treatment plan directions will be provided to ACM for
        pre-loaded needles.

      

      This
        information will list the patient’s
        name or
        patient ID, radiation oncologist, calibration date of the seeds, lot number
        of
        the seeds, quantity of seeds, implant date of the seeds, hospital or clinic,
        and
        department of the hospital.

      

      ACM
        will
        receive the seeds from Manufacturer and perform a 10% assay. The ACM 10%
        assay
        results shall not be greater than 5% different from the Manufacturer assay
        Certification; if this limit exceeded, ACM will call Manufacturer for
        instructions (e.g., to return the seeds, to await a modified order, to use
        the
        seeds to fill another order for which they are suited, etc.).

      

      ACM
        will
        provide an assay certificate with each order in addition to including the
        Manufacturer’s
        assay
        certificate.

      

      ACM
        will
        prepare the Vari-StrandTM, RTSTM, Vari-LoadTM or Readi-LoadTM product per customer
        patient treatment plan directions. ACM will verify the seeds in the needles
        using radiographic or other techniques according to industry standard
        procedures. ACM will sterilize the loaded products in accordance with the
        applicable portions of ISO 11135 (sterilization standards). 

      

      ACM
        shall
        comply with all regulations for the safe packaging and transport of radioactive
        materials in shipments to customers and other destinations including transfer
        for sterilization. In the event ACM uses sub-contract for transportation,
        ACM
        will require that the sub-contract comply with this provision.

      

      ACM
        shall
        not subject seeds provided by Manufacturer to any conditions that exceed
        the
        specifications of ANSI-HPS 43.6-1997 and ISO 2919-1999E classification
        C53X42.

      

      ACM
        shall
        abide with the conditions in its radioactive materials licenses and the
        applicable radiation protection regulations for the transfer of radioactive
        materials, including the requirement that recipients are appropriately licensed
        for receipt of these materials.

      

      ACM
        will
        ship the completed order to the end user based on the ship-to instructions
        provided.

      

      In
        order
        to guarantee on-time delivery to the customer, Manufacturer must have the
        Products delivered to ACM no less than six (6) business days before the
        scheduled implant date. ACM will use its best efforts in particular cases
        to
        meet a tighter schedule upon request, if necessary to meet a customer’s
        requirements, but any such cases must be approved by ACM individually in
        advance.Exhibit
      10.6

    

    SUBSCRIPTION
      AGREEMENT

     

    THIS
      SUBSCRIPTION AGREEMENT
      (this
“Agreement”),
      dated
      as of April ___, 2006, by and among Valcent Products Inc. (formerly known as
      Nettron.com, Inc.), an Alberta, Canada corporation (the “Company”),
      and
      the subscribers identified on the signature page hereto (each a “Subscriber”
and
      collectively “Subscribers”).

     

    WHEREAS,
      the
      Company and the Subscribers are executing and delivering this Agreement in
      reliance upon an exemption from securities registration afforded by the
      provisions of Section 4(2), Section 4(6) and/or Regulation D (“Regulation
      D”)
      as
      promulgated by the United States Securities and Exchange Commission (the
“Commission”)
      under
      the Securities Act of 1933, as amended (the “1933
      Act”).

     

    WHEREAS,
      the
      parties desire that, upon the terms and subject to the conditions contained
      herein, the Company shall issue and sell to the Subscribers, as provided herein,
      and the Subscribers, in the aggregate, shall purchase up to $551,666 (the
“Purchase
      Price”)
      of
      principal amount of promissory notes of the Company (“Note”
or
      “Notes”)
      which
      Notes are convertible into shares of the Company’s common stock, no par value
      (the “Common
      Stock”)
      at a
      per share conversion price set forth in the Note (“Conversion
      Price”);
      and
      share purchase warrants (the “Warrants”)
      in the
      forms attached hereto as Exhibit
      A1 and Exhibit A2 to
      purchase shares of Common Stock (the “Warrant
      Shares”).
      The
      Notes, shares of Common Stock issuable upon conversion of the Notes (the
“Shares”),
      the
      Warrants and the Warrant Shares are collectively referred to herein as the
      “Securities”;
      and

     

    WHEREAS,
      the
      aggregate proceeds of the sale of the Notes and the Warrants contemplated hereby
      shall be held in escrow pursuant to the terms of a Funds Escrow Agreement to
      be
      executed by the parties substantially in the form attached hereto as
Exhibit
      B
      (the
“Escrow
      Agreement”).

     

    NOW,
      THEREFORE,
      in
      consideration of the mutual covenants and other agreements contained in this
      Agreement the Company and the Subscribers hereby agree as follows:

     

    1.    
Closing.
      Subject
      to the satisfaction or waiver of the terms and conditions of this Agreement,
      on
      each Closing Date (as defined in Section 2 below), each Subscriber shall
      purchase and the Company shall sell to each Subscriber a Note in the principal
      amount designated on the signature page hereto for the consideration set forth
      on the signature page hereto, and the amount of Warrants determined pursuant
      to
      Section 3 below.

     

    2.    
Closing
      Date.
      The
      consummation of the transactions contemplated herein shall take place, from
      time
      to time, at the offices of Grushko & Mittman, P.C., 551 Fifth Avenue, Suite
      1601, New York, New York 10176, upon the satisfaction of all conditions to
      Closing set forth in this Agreement (“Closing
      Date”).
      In
      the event there is more than one Closing, then the first Closing Date shall
      be
      the date employed to calculate all time related requirements hereunder for
      all
      Subscribers.

    

    3.     Warrants. 

    

     (a)   Class
      A Warrants.
      On the
      Closing Date, the Company will issue and deliver Class A Warrants to the
      Subscribers. One Class A Warrant will be issued for each $0.75 of Purchase
      Price
      paid by a Subscriber on a Closing Date. The exercise price to acquire a Warrant
      Share upon exercise of a Class A Warrant shall be $0.50, subject to reduction
      as
      described in the Class A Warrant. The Class A Warrants shall be exercisable
      until three years after the Closing Date.

     

    
      
        (Subscription
          Agreement)

        
        

      

      
        1

        
          

        

      

      
        
        

      

    

     

    (b)   Class
      B Warrants.
      On
      the
      Closing Date, the Company will issue and deliver Class B Warrants to the
      Subscribers. One Class B Warrant will be issued for each $0.75 of Purchase
      Price
      paid by a Subscriber on a Closing Date. The exercise price to acquire a Warrant
      Share upon exercise of a Class B Warrant shall be $1.00, subject to reduction
      as
      described in the Class B Warrant. The Class B Warrants shall be exercisable
      until three years after the Closing Date.

     

    4.    
Subscriber’s
      Representations and Warranties.
      Each
      Subscriber hereby represents and warrants to and agrees with the Company only
      as
      to such Subscriber that:

    

    (a)   Organization
      and Standing of the Subscribers.
      If the
      Subscriber is an entity, such Subscriber is a corporation, partnership or other
      entity duly incorporated or organized, validly existing and in good standing
      under the laws of the jurisdiction of its incorporation or
      organization.

    

    (b)   Authorization
      and Power.
      Each
      Subscriber has the requisite power and authority to enter into and perform
      this
      Agreement and to purchase the Notes and Warrants being sold to it hereunder.
      The
      execution, delivery and performance of this Agreement by such Subscriber and
      the
      consummation by it of the transactions contemplated hereby and thereby have
      been
      duly authorized by all necessary corporate or partnership action, and no further
      consent or authorization of such Subscriber or its Board of Directors,
      stockholders, partners, members, as the case may be, is required. This Agreement
      has been duly authorized, executed and delivered by Subscriber and constitutes,
      or shall constitute when executed and delivered, a valid and binding obligation
      of the Subscriber enforceable against the Subscriber in accordance with the
      terms thereof.

     

    (c)   No
      Conflicts.
      The
      execution, delivery and performance of this Agreement and the consummation
      by
      Subscriber of the transactions contemplated hereby or relating hereto do not
      and
      will not (i) result in a violation of such Subscriber’s charter documents or
      bylaws or other organizational documents or (ii) conflict with, or constitute
      a
      default (or an event which with notice or lapse of time or both would become
      a
      default) under, or give to others any rights of termination, amendment,
      acceleration or cancellation of any agreement, indenture or instrument or
      obligation to which such Subscriber is a party or by which its properties or
      assets are bound, or result in a violation of any law, rule, or regulation,
      or
      any order, judgment or decree of any court or governmental agency applicable
      to
      such Subscriber or its properties (except for such conflicts, defaults and
      violations as would not, individually or in the aggregate, have a material
      adverse effect on such Subscriber). Such Subscriber is not required to obtain
      any consent, authorization or order of, or make any filing or registration
      with,
      any court or governmental agency in order for it to execute, deliver or perform
      any of its obligations under this Agreement or to purchase the Notes or acquire
      the Warrants in accordance with the terms hereof, provided that for purposes
      of
      the representation made in this sentence, such Subscriber is assuming and
      relying upon the accuracy of the relevant representations and agreements of
      the
      Company herein.

    

    (d)   Information
      on Company.
      The
      Subscriber has been furnished with or has had access through publicly available
      SEC and CSA filings to the Company’s Form 20-F for the year ended March 31, 2005
      as filed with the Commission, together with all subsequently filed Forms 6-K,
      and filings made with the Commission available at the EDGAR website (hereinafter
      referred to collectively as the “Reports”).
      The
      Subscriber has had an opportunity to ask questions and receive answers from
      representatives of the Company. In addition, the Subscriber has received in
      writing from the Company such other information concerning its operations,
      financial condition and other matters as the Subscriber has requested in writing
      (such other information is collectively, the “Other
      Written Information”),
      and
      considered all factors the Subscriber deems material in deciding on the
      advisability of investing in the Securities. 

     

    
      
        (Subscription
          Agreement)

        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    (e)   Information
      on Subscriber.
      The
      Subscriber is, and will be at the time of the conversion of the Notes and
      exercise of the Warrants, an “accredited
      investor”,
      as
      such term is defined in Regulation D promulgated by the Commission under the
      1933 Act, is experienced in investments and business matters, has made
      investments of a speculative nature and has purchased securities of non-United
      States publicly-owned companies in private placements in the past and, with
      its
      representatives, has such knowledge and experience in financial, tax and other
      business matters as to enable the Subscriber to utilize the information made
      available by the Company to evaluate the merits and risks of and to make an
      informed investment decision with respect to the proposed purchase, which
      represents a speculative investment. The Subscriber has the authority and is
      duly and legally qualified to purchase and own the Securities. The Subscriber
      is
      able to bear the risk of such investment for an indefinite period and to afford
      a complete loss thereof. The information set forth on the signature page hereto
      regarding the Subscriber is accurate.

     

    (f)   Purchase
      of Notes and Warrants.
      On the
      Closing Date, the Subscriber will purchase the Notes, and Warrants as principal
      for its own account for investment only and not with a view toward, or for
      resale in connection with, the public sale or any distribution
      thereof.

     

    (g)   Compliance
      with Securities Act.
       The
      Subscriber understands and agrees that the Securities have not been registered
      under the 1933 Act or any applicable state securities laws, by reason of their
      issuance in a transaction that does not require registration under the 1933
      Act
      (based in part on the accuracy of the representations and warranties of
      Subscriber contained herein), and that such Securities must be held indefinitely
      unless a subsequent disposition is registered under the 1933 Act or any
      applicable state securities laws or is exempt from such
      registration.

     

    (h)   Shares
      Legend.
      The
      Shares, and the Warrant Shares shall bear the following or similar
      legend:

    “THE
      SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
      SECURITIES ACT OF 1933, AS AMENDED. THESE SHARES MAY NOT BE SOLD, OFFERED FOR
      SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
      STATEMENT UNDER SUCH SECURITIES ACT OR ANY APPLICABLE STATE SECURITIES LAW
      OR AN
      OPINION OF COUNSEL REASONABLY SATISFACTORY TO VALCENT PRODUCTS INC. THAT SUCH
      REGISTRATION IS NOT REQUIRED.”

     

    (i)   Warrants
      Legend.
      The
      Warrants shall bear the following 

    or
      similar legend:

     

    “THIS
      WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT
      BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS WARRANT
      AND
      THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD,
      OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
      REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID ACT OR ANY APPLICABLE
      STATE
      SECURITIES LAW OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO VALCENT
      PRODUCTS INC. THAT SUCH REGISTRATION IS NOT REQUIRED.”

     

    
      
        (Subscription
          Agreement)

        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    (j)   Note
      Legend.
      The
      Note shall bear the following legend:

     

    “THIS
      NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN
      REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS NOTE AND THE
      COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED
      FOR
      SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
      STATEMENT AS TO THIS NOTE UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY
      SATISFACTORY TO VALCENT PRODUCTS INC. THAT SUCH REGISTRATION IS NOT
      REQUIRED.”

     

    (k)   Communication
      of Offer.
      The
      offer to sell the Securities was directly communicated to the Subscriber by
      the
      Company. At no time was the Subscriber presented with or solicited by any
      leaflet, newspaper or magazine article, radio or television advertisement,
      or
      any other form of general advertising or solicited or invited to attend a
      promotional meeting otherwise than in connection and concurrently with such
      communicated offer.

     

    (l)   Authority;
      Enforceability.
      This
      Agreement and other agreements delivered together with this Agreement or in
      connection herewith have been duly authorized, executed and delivered by the
      Subscriber and are valid and binding agreements enforceable in accordance with
      their terms, subject to bankruptcy, insolvency, fraudulent transfer,
      reorganization, moratorium and similar laws of general applicability relating
      to
      or affecting creditors’ rights generally and to general principles of equity;
      and Subscriber has full corporate power and authority necessary to enter into
      this Agreement and such other agreements and to perform its obligations
      hereunder and under all other agreements entered into by the Subscriber relating
      hereto.

    

    (m)   Restricted
      Securities.
      Subscriber understands that the Securities have not been registered under the
      1933 Act and such Subscriber will not sell, offer to sell, assign, pledge,
      hypothecate or otherwise transfer any of the Securities unless pursuant to
      an
      effective registration statement under the 1933 Act, or unless an exemption
      from
      registration is available. Notwithstanding anything to the contrary contained
      in
      this Agreement, such Subscriber may transfer (without restriction and without
      the need for an opinion of counsel) the Securities to its Affiliates (as defined
      below) provided that each such Affiliate is an “accredited investor” under
      Regulation D and such Affiliate agrees to be bound by the terms and conditions
      of this Agreement. For the purposes of this Agreement, an “Affiliate”
of
      any
      person or entity means any other person or entity directly or indirectly
      controlling, controlled by or under direct or indirect common control with
      such
      person or entity. Affiliate includes each subsidiary of the Company. For
      purposes of this definition, “control”
means
      the power to direct the management and policies of such person or firm, directly
      or indirectly, whether through the ownership of voting securities, by contract
      or otherwise.

    

    (n)   No
      Governmental Review.
      Each
      Subscriber understands that no United States federal or state agency or any
      other governmental or state agency has passed on or made recommendations or
      endorsement of the Securities or the suitability of the investment in the
      Securities nor have such authorities passed upon or endorsed the merits of
      the
      offering of the Securities.

     

    
      
        (Subscription
          Agreement)

        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    (o)   Correctness
      of Representations.
      Each
      Subscriber represents as to such Subscriber that the foregoing representations
      and warranties are true and correct as of the date hereof and, unless a
      Subscriber otherwise notifies the Company prior to the Closing Date shall be
      true and correct as of the Closing Date.

    

    (p)   Survival.
      The
      foregoing representations and warranties shall survive the Closing Date for
      a
      period of three years.

     

    5.     Company
      Representations and Warranties.
      The
      Company represents and warrants to and agrees with each Subscriber
      that:

     

    (a)   Due
      Incorporation.
      The
      Company and each of its Subsidiaries is a corporation or other entity duly
      incorporated or organized, validly existing and in good standing under the
      laws
      of the jurisdiction of its incorporation or organization and has the requisite
      corporate power to own its properties and to carry on its business as
presently
      conducted. The Company and each of its Subsidiaries is duly qualified as a
      foreign corporation to do business and is in good standing in each jurisdiction
      where the nature of the business conducted or property owned by it makes such
      qualification necessary, other than those jurisdictions in which the failure
      to
      so qualify would not have a Material Adverse Effect. For purposes of this
      Agreement, a “Material
      Adverse Effect”
shall
      mean a material adverse effect on the financial condition, results of
      operations, properties or business of the Company and its Subsidiaries taken
      as
      a whole. 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 (i) 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, (ii) 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 (iii) 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. All the Company’s Subsidiaries as of the Closing Date are set forth on
Schedule
      5(a)
      hereto.

     

    (b)   Outstanding
      Stock.
      All
      issued and outstanding shares of capital stock of the Company has been duly
      authorized and validly issued and are fully paid and nonassessable.

     

    (c)   Authority;
      Enforceability.
      This
      Agreement, the Note, the Warrants and the Escrow Agreement, and any other
      agreements delivered together with this Agreement or in connection herewith
      (collectively “Transaction
      Documents”)
      have
      been duly authorized, executed and delivered by the Company and are valid and
      binding agreements enforceable in accordance with their terms, subject to
      bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
      similar laws of general applicability relating to or affecting creditors’ rights
      generally and to general principles of equity. The Company has full corporate
      power and authority necessary to enter into and deliver the Transaction
      Documents and to perform its obligations thereunder.

     

    (d)   Additional
      Issuances.
      There
      are no outstanding agreements or preemptive or similar rights affecting the
      Company’s common stock or equity and no outstanding rights, warrants or options
      to acquire, or instruments convertible into or exchangeable for, or agreements
      or understandings with respect to the sale or issuance of any shares of common
      stock or equity of the Company or other equity interest in any of the
      Subsidiaries of the Company except as described on Schedule
      5(d).

     

    
      
        (Subscription
          Agreement)

        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    (e)   Consents.
      Except
      as otherwise set forth in Schedule
      5(e),
      no
      consent, approval, authorization or order of any court, governmental agency
      or
      body or arbitrator having jurisdiction over the Company, or any of its
      Affiliates, the OTC Bulletin Board (“Bulletin
      Board”)
      nor
      the Company’s shareholders is required for the execution by the Company of the
      Transaction Documents and compliance and performance by the Company of its
      obligations under the Transaction Documents, including, without limitation,
      the
      issuance and sale of the Securities.

     

    (f)   No
      Violation or Conflict.
      Assuming the representations and warranties of the Subscribers in Section 4
      are
      true and correct, and that the Company has obtained all consents, approvals
      and
      authorizations set forth in Schedule
      5(e),
      neither
      the issuance and sale of the Securities nor the performance of the Company’s
      obligations under this Agreement and all other agreements entered into by the
      Company relating thereto by the Company will:

     

    (i) violate,
      conflict with, result in a breach of, or constitute a default (or an event
      which
      with the giving of notice or the lapse of time or both would be reasonably
      likely to constitute a default) under (A) the articles or certificate of
      incorporation, charter or bylaws of the Company, (B) to the Company’s knowledge,
      any decree, judgment, order, law, treaty, rule, regulation or determination
      applicable to the Company of any court, governmental agency or body, or
      arbitrator having jurisdiction over the Company or over the properties or assets
      of the Company or any of its Affiliates, (C) the terms of any bond, debenture,
      note or any other evidence of indebtedness, or any agreement, stock option
      or
      other similar plan, indenture, lease, mortgage, deed of trust or other
      instrument to which the Company or any of its Affiliates is a party, by which
      the Company or any of its Affiliates is bound, or to which any of the properties
      of the Company or any of its Affiliates is subject, or (D) the terms of any
      “lock-up” or similar provision of any underwriting or similar agreement to which
      the Company, or any of its Affiliates is a party except the violation, conflict,
      breach, or default of which would not have a Material Adverse Effect;
      or

     

    (ii) result
      in
      the creation or imposition of any lien, charge or encumbrance upon the
      Securities or any of the assets of the Company or any of its Affiliates except
      as described herein; or

     

    (iii) result
      in
      the activation of any anti-dilution rights or a reset or repricing of any debt
      or security instrument of any other creditor or equity holder of the Company,
      nor result in the acceleration of the due date of any obligation of the Company;
      or

     

    (iv) result
      in
      the activation of any piggy-back registration rights of any person or entity
      holding securities of the Company or having the right to receive securities
      of
      the Company.

     

    (g)   The
      Securities.
      The
      Securities upon issuance:

     

    (i) are,
      or
      will be, free and clear of any security interests, liens, claims or other
      encumbrances, subject to restrictions upon transfer under the 1933 Act and
      any
      applicable state securities laws;

    

    (ii) have
      been, or will be, duly and validly authorized and on the date of issuance of
      the
      Shares and upon exercise of the Warrants, the Shares and Warrant Shares will
      be
      duly and validly issued, fully paid and nonassessable or if registered pursuant
      to the 1933 Act, and resold pursuant to an effective registration statement
      and
      prospectus delivery requirements are satisfied, will be free trading and
      unrestricted);

     

    
      
        (Subscription
          Agreement)

        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    (iii) will
      not
      have been issued or sold in violation of any preemptive or other similar rights
      of the holders of any securities of the Company;

     

    (iv) will
      not
      subject the holders thereof to personal liability by reason of being such
      holders; and

     

    (v) assuming
      the representations warranties of the Subscribers as set forth in Section 4
      hereof are true and correct, will not result in a violation of Section 5 under
      the 1933 Act.

     

    (h)   Litigation.
      There
      is no pending or, to the best knowledge of the Company, threatened action,
      suit,
      proceeding or investigation before any court, governmental agency or body,
      or
      arbitrator having jurisdiction over the Company, or any of its Affiliates that
      would affect the execution by the Company or the performance by the Company
      of
      its obligations under the Transaction Documents. Except as disclosed in the
      Reports or in the schedules hereto, there is no pending or, to the best
      knowledge of the Company, basis for or threatened action, suit, proceeding
      or
      investigation before any court, governmental agency or body, or arbitrator
      having jurisdiction over the Company, or any of its Affiliates which litigation
      if adversely determined would have a Material Adverse Effect.

     

    (i)   Reporting
      Company.
      The
      Company is a publicly-held company subject to reporting obligations pursuant
      to
      Section 13 of the 1934
      Act
      and has
      a class of common shares registered pursuant to Section 12(g) of the 1934 Act.
      Pursuant to the provisions of the 1934 Act, the Company has filed all reports
      and other materials required to be filed thereunder with the Commission during
      the preceding twelve months.

     

    (j)   No
      Market Manipulation.
      The
      Company and its Affiliates have not taken, and will not take, directly or
      indirectly, any action designed to, or that might reasonably be expected to,
      cause or result in stabilization or manipulation of the price of the Common
      Stock to
      facilitate the sale or resale of the Securities or affect the price at which
      the
      Securities may be issued or resold.

     

    (k)   Information
      Concerning Company.
      The
      Reports contain all material information relating to the Company and its
      operations and financial condition as of their respective dates which
      information is required to be disclosed therein. Since the date of the financial
      statements included in the Reports, and except as modified in the Other Written
      Information or in the Schedules hereto, there has been no Material Adverse
      Event
      relating to the Company’s business, financial condition or affairs not disclosed
      in the Reports. The Reports, including the financial statements included
      therein, do not contain any 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 not misleading in light of the circumstances when
      made.

     

    (l)   Stop
      Transfer.
      The
      Company will not issue any stop transfer order or other order impeding the
      sale,
      resale or delivery of any of the Securities, except as may be required by any
      applicable federal or state securities laws and unless contemporaneous notice
      of
      such instruction is given to the Subscriber.

     

    (m)   Defaults.
      The
      Company is not in violation of its articles of incorporation or bylaws. Except
      as otherwise set forth in Schedule
      5(m),
      the
      Company is (i) not in default under or in violation of any other material
      agreement or instrument to which it is a party or by which it or any of its
      properties are bound or affected, which default or violation would have a
      Material Adverse Effect,
      (ii)
      not in default with respect to any order of any court, arbitrator or
      governmental body or subject to or party to any order of any court or
      governmental authority arising out of any action, suit or proceeding under
      any
      statute or other law respecting antitrust, monopoly, restraint of trade, unfair
      competition or similar matters, or (iii) to the Company’s knowledge not in
      violation of any statute, rule or regulation of any governmental authority
      which
      violation would have a Material Adverse Effect.

     

    
      
        (Subscription
          Agreement)

        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

    (n)   No
      Integrated Offering.
      Neither
      the Company, nor any of its Affiliates, nor any person acting on its or their
      behalf, has directly or indirectly made any offers or sales of any security
      or
      solicited any offers to buy any security under circumstances that would cause
      the offer of the Securities pursuant to this Agreement to be integrated with
      prior offerings by the Company for purposes of the 1933 Act or any applicable
      stockholder approval provisions, including, without limitation, under the rules
      and regulations of the Bulletin Board. Nor will the Company or any of its
      Affiliates take any action or steps that would cause the offer or issuance
      of
      the Securities to be integrated with other offerings. The Company will not
      conduct any offering other than the transactions contemplated hereby that will
      be integrated with the offer or issuance of the Securities, which would impair
      the exemption relied upon in this Offering.

     

    (o)   No
      General Solicitation.
      Neither
      the Company, nor any of its Affiliates, nor to its knowledge, any person acting
      on its or their behalf, has engaged in any form of general solicitation or
      general advertising (within the meaning of Regulation D under the 1933 Act)
      in
      connection with the offer or sale of the Securities.

     

    (p)   Listing.
      The
      Common Stock is quoted on the Bulletin Board. The Company has not received
      any
      oral or written notice that the Common Stock is not eligible nor will become
      ineligible for quotation on the Bulletin Board nor that the Common Stock does
      not meet all requirements for the continuation of such quotation and the Company
      satisfies all the requirements for the continued quotation of the Common Stock
      on the Bulletin Board.

     

    (q)   No
      Undisclosed Liabilities.
      The
      Company has no liabilities or obligations which are material, individually
      or in
      the aggregate, which are not disclosed in the Reports and Other Written
      Information, other than those incurred in the ordinary course of the Company’s
      businesses since March 31, 2005 and which, individually or in the aggregate,
      would reasonably be expected to have a Material Adverse Effect,
      except
      as disclosed on Schedule
      5(q).

     

    (r)   No
      Undisclosed Events or Circumstances.
      Since
      March 31, 2005, no event or circumstance has occurred or exists with respect
      to
      the Company or its businesses, properties, operations or financial condition,
      that, under applicable law, rule or regulation, requires public disclosure
      or
      announcement prior to the date hereof by the Company but which has not been
      so
      publicly announced or disclosed in the Reports.

     

    (s)  Capitalization.
      The
      authorized and outstanding capital stock of the Company as of the date of this
      Agreement and the Closing Date (not including the Securities) are set forth
      on
Schedule
      5(d).
      Except
      as set forth on Schedule
      5(d),
      there
      are no options, warrants, or rights to subscribe to, securities, rights or
      obligations convertible into or exchangeable for or giving any right to
      subscribe for any shares of capital stock of the Company or any of its
      Subsidiaries. All of the outstanding shares of Common Stock of the Company
      have
      been duly and validly authorized and issued and are fully paid and
      nonassessable.

     

    (t)  Dilution.
      The
      Company’s executive officers and directors understand the nature of the
      Securities being sold hereby and recognize that the issuance of the Securities
      will have a potential dilutive effect on the equity holdings of other holders
      of
      the Company’s equity or rights to receive equity of the Company. The board of
      directors of the Company has concluded, in its good faith business judgment
      that
      the issuance of the Securities is in the best interests of the Company. The
      Company specifically acknowledges that its obligation to issue the Shares upon
      conversion of the Notes, and the Warrant Shares upon exercise of the Warrants
      is
      binding upon the Company and enforceable regardless of the dilution such
      issuance may have on the ownership interests of other shareholders of the
      Company or parties entitled to receive equity of the Company.

     

    
      
        (Subscription
          Agreement)

        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

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

    

    (v)   Investment
      Company.
      Neither
      the Company nor any Affiliate is an “investment company” within the meaning of
      the Investment Company Act of 1940, as amended.

    

    (w)   Subsidiary
      Representations.
      The
      Company makes each of the representations contained in Sections 5(a), (b),
      (d),
      (f), (h), (k), (m), (q) through (s), (u) and (v) of this Agreement, as same
      relate to each Subsidiary of the Company.

    

    (x)   Company
      Predecessor.
      All
      representations made by or relating to the Company of a historical or
      prospective nature and all undertaking described in Sections 9(g) through 9(l)
      shall relate and refer to the Company, its predecessors, and the
      Subsidiaries.

    

    (y)   Correctness
      of Representations.
      The
      Company represents that the foregoing representations and warranties are true
      and correct as of the date hereof in all material respects, and, unless the
      Company otherwise notifies the Subscribers prior to the Closing Date, shall
      be
      true and correct in all material respects as of the Closing Date.

     

    (z)   Survival.
      The
      foregoing representations and warranties shall survive the Closing Date for
      a
      period of three years.

     

    6.  
         Regulation
      D Offering.
      The
      offer and issuance of the Securities to the Subscribers is being made pursuant
      to the exemption from the registration provisions of the 1933 Act afforded
      by
      Section 4(2) or Section 4(6) of the 1933 Act and/or Rule 506 of Regulation
      D
      promulgated thereunder. On the Closing Date, the Company will provide an opinion
      reasonably acceptable to Subscriber from the Company’s legal counsel opining on
      the availability of an exemption from registration under the 1933 Act as it
      relates to the offer and issuance of the Securities and other matters reasonably
      requested by Subscribers. A form of the legal opinion is annexed hereto as
      Exhibit
      C.
      The
      Company will provide, at the Company’s expense, such other legal opinions in the
      future as are reasonably necessary for the issuance and/or resale of the Common
      Stock issuable upon conversion of the Notes and exercise of the Warrants
      pursuant to an effective registration statement.

    

    7.1. 
         Conversion
      of Note.

    

    (a)   Upon
      the
      conversion of a Note or part thereof, the Company shall, at its own cost and
      expense, take all necessary action, including obtaining and delivering, an
      opinion of counsel to assure that the Company’s transfer agent shall issue stock
      certificates in the name of Subscriber (or its nominee) or such other persons
      as
      designated by Subscriber and in such denominations to be specified at conversion
      representing the number of shares of Common Stock issuable upon such conversion.
      The Company warrants that no instructions other than these instructions have
      been or will be given to the transfer agent of the Company’s Common Stock and
      that, unless waived by the Subscriber, the Shares will be free-trading, and
      freely transferable, and will not contain a legend restricting the resale or
      transferability of the Shares provided the Shares are being sold pursuant to
      an
      effective registration statement covering the Shares (and prospectus delivery
      requirements are satisfied) or are otherwise exempt from registration.

     

    
      
        (Subscription
          Agreement)

        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    (b)   Subscriber
      will give notice of its decision to exercise its right to convert the Note,
      interest, any sum due to the Subscriber under the Transaction Documents
      including Liquidated Damages, or part thereof by telecopying an executed and
      completed Notice of Conversion (a form of which is annexed as Exhibit
      A
      to the
      Note) to the Company via confirmed telecopier transmission or otherwise pursuant
      to Section 13(a) of this Agreement. The Subscriber will not be
      required to surrender the Note
      until
      the Note has been fully converted or satisfied. Each date on which a Notice
      of
      Conversion is telecopied to the Company in accordance with the provisions hereof
      shall be deemed a Conversion
      Date.
      The
      Company will itself or cause the Company’s transfer agent to transmit the
      Company’s Common Stock certificates representing the Shares issuable upon
      conversion of the Note to the Subscriber via express courier for receipt by
      such
      Subscriber within four (4) business days after receipt by the Company of the
      Notice of Conversion (such third day being the “Delivery
      Date”).
      In
      the event the Shares are electronically transferable, then delivery of the
      Shares must
      be made
      by electronic transfer provided request for such electronic transfer has been
      made by the Subscriber
      and the Subscriber has complied with all applicable securities laws in
      connection with the sale of the Common Stock, including, without limitation,
      the
      prospectus delivery requirements. A Note representing the balance of the Note
      not so converted will be provided by the Company to the Subscriber if requested
      by Subscriber, provided the Subscriber delivers the
      original Note to the Company. In the event that a Subscriber elects not to
      surrender a Note for reissuance upon partial payment or conversion, the
      Subscriber hereby indemnifies the Company against any and all loss or damage
      attributable to a third-party claim in an amount in excess of the actual amount
      then due under the Note.

    

    (c)   The
      Company understands that a delay in the delivery of the Shares in the form
      required pursuant to Section 7.1 hereof, or the Mandatory Redemption Amount
      described in Section 7.2 hereof, respectively after the Delivery Date or the
      Mandatory Redemption Payment Date (as hereinafter defined) could result in
      economic loss to the Subscriber. As compensation to the Subscriber for such
      loss, the Company agrees to pay (as liquidated damages and not as a penalty)
      to
      the Subscriber for late issuance of Shares in the form required pursuant to
      Section 7.1 hereof upon Conversion of the Note in the amount of $100 per
      business day after the Delivery Date for each $10,000 of Note principal amount
      being converted of the corresponding Shares which are not timely delivered.
      The
      Company shall pay any payments incurred under this Section in immediately
      available funds upon demand. Furthermore, in addition to any other remedies
      which may be available to the Subscriber, in the event that the Company fails
      for any reason to effect delivery of the Shares by the Delivery Date or make
      payment by the Mandatory Redemption Payment Date, the Subscriber will be
      entitled to revoke all or part of the relevant Notice of Conversion or rescind
      all or part of the notice of Mandatory Redemption by delivery of a notice to
      such effect to the Company whereupon the Company and the Subscriber shall each
      be restored to their respective positions immediately prior to the delivery
      of
      such notice, except that the liquidated damages described above shall be payable
      through the date notice of revocation or rescission is given to the
      Company.

    

    (d)   Nothing
      contained herein or in any document referred to herein or delivered in
      connection herewith shall be deemed to establish or require the payment of
      a
      rate of interest or other charges in excess of the maximum permitted by
      applicable law. In the event that the rate of interest or dividends required
      to
      be paid or other charges hereunder exceed the maximum permitted by such law,
      any
      payments in excess of such maximum shall be credited against amounts owed by
      the
      Company to the Subscriber and thus refunded to the Company.

     

    
      
        (Subscription
          Agreement)

        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    7.2.   Mandatory
      Redemption at Subscriber’s Election.
      In the
      event the Company is prohibited from issuing Shares, or fails to timely deliver
      Shares on a Delivery Date, or upon the occurrence of any other Event of Default
      (as defined in the Note or in this Agreement) that is not cured during any
      applicable cure period and an additional ten days thereafter, then at the
      Subscriber’s election, the Company must pay to the Subscriber ten (10) business
      days after request by the Subscriber, at the Subscriber’s election, a sum of
      money determined by (i) multiplying up to the outstanding principal amount
      of
      the Note designated by the Subscriber by 130%, or (ii) multiplying the number
      of
      Shares otherwise deliverable upon conversion of an amount of Note principal
      and/or interest designated by the Subscriber (with the date of giving of such
      designation being a “Deemed
      Conversion Date”)
      at the
      then Conversion Price that would be in effect on the Deemed Conversion Date
      by
      the closing price of the Common Stock on the Principal Market for the last
      trading day preceding the Deemed Conversion Date, whichever is greater of (i)
      and (ii) above, together with accrued but unpaid interest thereon and any other
      sums arising and outstanding under the Transaction Documents (“Mandatory
      Redemption Payment”).
      The
      Mandatory Redemption Payment must be received by the Subscriber on the same
      date
      as the Company Shares otherwise deliverable or within ten (10) business days
      after request, whichever is sooner (“Mandatory
      Redemption Payment Date”).
      Upon
      receipt of the Mandatory Redemption Payment, the corresponding Note principal
      and interest will be deemed paid and no longer outstanding. Liquidated damages
      calculated pursuant to Section 7.1(c) hereof, that have been paid or accrued
      for
      the twenty day period prior to the actual receipt of the Mandatory Redemption
      Payment by the Subscriber shall be credited against the Mandatory Redemption
      Payment calculated pursuant to subsections (i) and (ii) above of this Section
      7.2. In the event of a “Change
      in Control”
(as
      defined below), the Subscriber may demand, and the Company shall pay, a
      Mandatory Redemption Payment equal to 130% of the outstanding principal amount
      of the Note designated by the Subscriber together with accrued but unpaid
      interest thereon and any other sums arising and outstanding under the
      Transaction Documents. For purposes of this Section 7.2, “Change
      in Control”
shall
      mean (i) the Company no longer having a class of shares publicly tradable and
      listed on a Principal Market, (ii) the Company becoming a Subsidiary of another
      entity or merging into or with another entity, (iii) a majority of the board
      of
      directors of the Company as of the Closing Date no longer serving as directors
      of the Company, other than due to (a) natural causes except in the normal course
      of business or as may have been disclosed in the Reports or Other Written
      Information, (b) voluntary resignation, or (c) voluntary election not to be
      reappointed as director, (iv) if the holders of the Company’s Common Stock as of
      the Closing Date beneficially owning at any time after the Closing Date less
      than twenty-five percent of the Common stock owned by them on the Closing Date,
      or (v) the sale, lease, license or transfer of substantially all the assets
      of
      the Company or Subsidiaries.

    

    7.3.  Maximum
      Conversion.
      The
      Subscriber shall not be entitled to convert on a Conversion Date that amount
      of
      the Note in connection with that number of shares of Common Stock which would
      be
      in excess of the sum of (i) the number of shares of common stock beneficially
      owned by the Subscriber and its Affiliates on a Conversion Date, and (ii) the
      number of shares of Common Stock issuable upon the conversion of the Note with
      respect to which the determination of this provision is being made on a
      Conversion Date, which would result in beneficial ownership by the Subscriber
      and its Affiliates of more than 4.99% of the outstanding shares of common stock
      of the Company on such Conversion Date. For the purposes of the provision to
      the
      immediately preceding sentence, beneficial ownership shall be determined in
      accordance with Section 13(d) of the Securities Exchange Act of 1934, as
      amended, and Regulation 13d-3 thereunder. Subject to the foregoing, the
      Subscriber shall not be limited to aggregate conversions of only 4.99% and
      aggregate conversions by the Subscriber may exceed 4.99%. The Subscriber may
      waive the conversion limitation described in this Section 7.3, in whole or
      in
      part, or increase the permitted beneficial ownership amount upon and effective
      after 61 days prior written notice to the Company. The Subscriber may allocate
      which of the equity of the Company deemed beneficially owned by the Subscriber
      shall be included in the 4.99% amount described above and which shall be
      allocated to the excess above 4.99%.

     

    
      
        (Subscription
          Agreement)

        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

    7.4.   Injunction
      Posting of Bond.
      In the
      event a Subscriber shall elect to convert a Note or part thereof or exercise
      the
      Warrant in whole or in part, the Company may not refuse conversion or exercise
      based on any claim that such Subscriber or any one associated or affiliated
      with
      such Subscriber has been engaged in any violation of law, or for any other
      reason, unless, an injunction from a court, on notice, restraining and or
      enjoining conversion of all or part of such Note or exercise of all or part
      of
      such Warrant shall have been sought and obtained by the Company
      and the
      Company has posted a surety bond for the benefit of such Subscriber in the
      amount of 130% of the amount of the Note, or aggregate purchase price of the
      Warrant Shares which are sought to be subject to the injunction, which bond
      shall remain in effect until the completion of arbitration/litigation of the
      dispute and the proceeds of which shall be payable to such Subscriber to the
      extent Subscriber obtains judgment.

    

    7.5.   Buy-In.
      In
      addition to any other rights available to the Subscriber, if the Company fails
      to deliver to the Subscriber such shares issuable upon conversion of a Note
      by
      the Delivery Date and if after seven (7) business days after the Delivery Date
      the Subscriber purchases (in an open market transaction or otherwise) shares
      of
      Common Stock to deliver in satisfaction of a sale by such Subscriber of the
      Common Stock which the Subscriber was entitled to receive upon such conversion
      (a “Buy-In”),
      then
      the Company shall pay in cash to the Subscriber (in addition to any remedies
      available to or elected by the Subscriber) the amount by which (A) the
      Subscriber’s total purchase price (including brokerage commissions, if any) for
      the shares of Common Stock so purchased exceeds (B) the aggregate principal
      and/or interest amount of the Note for which such conversion was not timely
      honored,
      together with interest thereon at a rate of 15% per annum, accruing until such
      amount and any accrued interest thereon is paid in full (which amount shall
      be
      paid as liquidated damages and not as a penalty). For
      example, if the Subscriber purchases shares of Common Stock having a total
      purchase price of $11,000 to cover a Buy-In with respect to an attempted
      conversion of $10,000 of note principal and/or interest, the Company shall
      be
      required to pay the Subscriber $1,000,
      plus interest. The
      Subscriber shall provide the Company written notice indicating the amounts
      payable to the Subscriber in respect of the Buy-In.

    

    7.6 
        Adjustments.
      The
      Conversion Price, Warrant exercise price and amount of Shares issuable upon
      conversion of the Notes and exercise of the Warrants shall be equitably adjusted
      and as otherwise described in the Transaction Documents.

     

    7.7.   Redemption.
      The
      Note shall not be redeemable or callable except as described in the Note. The
      Warrants shall not be callable or redeemable. 

    

    8.  
         Finder’s
      Fee/Legal Fees.

     

    (a)   Finder’s
      Fee.
      The
      Company on the one hand, and each Subscriber (for himself only) on the other
      hand, agree to indemnify the other against and hold the other harmless from
      any
      and all liabilities to any persons claiming brokerage commissions or finder’s
      fees on account of services purported to have been rendered on behalf of the
      indemnifying party in connection with this Agreement or the transactions
      contemplated hereby and arising out of such party’s actions. The Company
      represents that there are no other parties entitled to receive fees,
      commissions, or similar payments in connection with the Offering except as
      described on Schedule
      8(a)
      hereto.

     

    (b)   Legal
      Fees.
      The
      Company shall pay to Grushko & Mittman, P.C., a fee of $15,000
      (“Legal
      Fees”)
      as
      reimbursement for services rendered to the Subscribers in connection with this
      Agreement and the purchase and sale of the Notes, and Warrants (the
“Offering”)
      and
      acting as Escrow Agent for the Offering. The Legal Fees will be payable out
      of
      funds held pursuant to the Escrow Agreement.

     

    
      
        (Subscription
          Agreement)

        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

    9.   Covenants
      of the Company.
      The
      Company covenants and agrees with the Subscribers as follows:

     

                  (a)   Stop
      Orders.
      The
      Company will advise the Subscribers within two hours after it receives notice
      of
      issuance by the Commission, any state securities commission or any other
      regulatory authority of any stop order or of any order preventing or suspending
      any offering of any securities of the Company, or of the suspension of the
      qualification of the Common Stock of the Company for offering or sale in any
      jurisdiction, or the initiation of any proceeding for any such
      purpose.

     

                  (b)   Listing.
      The
      Company shall promptly secure the listing of the Shares and the Warrant Shares
      upon each national securities exchange, or electronic or automated quotation
      system upon which they are or become eligible for listing and shall maintain
      such listing so long as any Notes or Warrants are outstanding and such listing
      is maintained for any class of the Company’s securities. The Company will
      maintain the listing of its Common Stock on the American Stock Exchange, Nasdaq
      SmallCap Market, Nasdaq National Market System, Bulletin Board, or New York
      Stock Exchange (whichever of the foregoing is at the time the principal trading
      exchange or market for the Common Stock (the “Principal
      Market”)),
      and
      will comply in all respects with the Company’s reporting, filing and other
      obligations under the bylaws or rules of the Principal Market, as applicable.
      The Company will provide the Subscribers copies of all notices it receives
      notifying the Company of the threatened and actual delisting of the Common
      Stock
      from any Principal Market. As of the date of this Agreement and the Closing
      Date, the Bulletin Board is and will be the Principal Market.

     

                  (c)   Market
      Regulations.
      The
      Company shall notify the Commission, the Principal Market and applicable state
      authorities, in accordance with their requirements, of the transactions
      contemplated by this Agreement, and shall take all other necessary action and
      proceedings as may be required and permitted by applicable law, rule and
      regulation, for the legal and valid issuance of the Securities to the
      Subscribers and promptly provide copies thereof to Subscriber.

     

                  (d)   Filing
      Requirements.
      From
      the date of this Agreement and until the sooner of (i) two (2) years after
      the
      Closing Date, or (ii) until all the Shares and Warrant Shares have been resold
      or transferred by all the Subscribers pursuant to the Registration Statement
      or
      pursuant to Rule 144, without regard to volume limitation, the Company will
      (A)
      cause its Common Stock to continue to be registered under Section 12(b) or
      12(g)
      of the 1934 Act, (B) comply in all respects with its reporting and filing
      obligations under the 1934 Act, (C) comply with all reporting requirements
      that
      are applicable to an issuer with a class of shares registered pursuant to
      Section 12(b) or 12(g) of the 1934 Act, as applicable, and (D) comply with
      all
      filing requirements related to any registration statement filed pursuant to
      this
      Agreement. The Company will use its best efforts not to take any action or
      file
      any document (whether or not permitted by the 1933 Act or the 1934 Act or the
      rules thereunder) to terminate or suspend such registration or to terminate
      or
      suspend its reporting and filing obligations under said acts until two (2)
      years
      after the Closing Date. Until the earlier of the resale of the Shares, and
      Warrant Shares by each Subscriber or until two (2) years after the Warrants
      have
      been exercised, the Company will use its best efforts to continue the listing
      or
      quotation of the Common Stock on a Principal Market and will comply in all
      respects with the Company’s reporting, filing and other obligations under the
      bylaws or rules of the Principal Market. The Company agrees to timely file
      a
      Form D with respect to the Securities if required under Regulation D and to
      provide a copy thereof to each Subscriber promptly after such
      filing.

     

                  (e)   Use
      of
      Proceeds.
      The
      proceeds of the Offering must be employed by the Company for the purposes set
      forth on Schedule
      9(e)
      hereto.
      Except as set forth on Schedule
      9(e),
      the
      Purchase Price may not and will not be used for accrued and unpaid officer
      and
      director salaries, payment of financing related debt, redemption of outstanding
      notes or equity instruments of the Company nor non-trade obligations outstanding
      on a Closing Date.

     

    
      
        (Subscription
          Agreement)

        
        

      

      
        13

        
          

        

      

      
        
        

      

    

     

                  (f)   Reservation.
      Prior
      to the Closing Date, the Company undertakes to reserve, pro rata,
      on
      behalf of each holder of a Note or Warrant, from its authorized but unissued
      common stock, a number of common shares equal to 200%
      of
      the amount of Common Stock necessary to allow each holder of a Note to be able
      to convert all such outstanding Notes and interest and reserve the amount of
      Warrant Shares issuable upon exercise of the Warrants. Failure to have
      sufficient shares reserved pursuant to this Section 9(f) for three (3)
      consecutive business days or ten (10) days in the aggregate shall be a material
      default of the Company’s obligations under this Agreement and an Event of
      Default under the Note.

     

                  (g)   Taxes.
      From
      the date of this Agreement and until the sooner of (i) two (2) years after
      the
      Closing Date, or (ii) until all the Shares, and Warrant Shares have been resold
      or transferred by all the Subscribers pursuant to the Registration Statement
      or
      pursuant to Rule 144, without regard to volume limitations, the Company will
      promptly pay and discharge, or cause to be paid and discharged, when due and
      payable, all lawful taxes, assessments and governmental charges or levies
      imposed upon the income, profits, property or business of the Company; provided,
      however, that any such tax, assessment, charge or levy need not be paid if
      the
      validity thereof shall currently be contested in good faith by appropriate
      proceedings and if the Company shall have set aside on its books adequate
      reserves with respect thereto, and provided, further, that the Company will
      pay
      all such taxes, assessments, charges or levies forthwith upon the commencement
      of proceedings to foreclose any lien which may have attached as security
      therefore.

     

                  (h)   Insurance.
      From
      the date of this Agreement and until the sooner of (i) two (2) years after
      the
      Closing Date, or (ii) until all the Shares, and Warrant Shares have been resold
      or transferred by all the Subscribers pursuant to the Registration Statement
      or
      pursuant to Rule 144, without regard to volume limitations, the Company will
      keep its assets which are of an insurable character insured by financially
      sound
      and reputable insurers against loss or damage by fire, explosion and other
      risks
      customarily insured against by companies in the Company’s line of business, in
      amounts sufficient to prevent the Company from becoming a co-insurer, and the
      Company will maintain, with financially sound and reputable insurers, insurance
      against other hazards and risks and liability to persons and property to the
      extent and in the manner customary for companies in similar businesses similarly
      situated and to the extent available on commercially reasonable
      terms.

     

                  (i)   Books
      and Records.
      From the
      date of this Agreement and until the sooner of (i) two (2) years after the
      Closing Date, or (ii) until all the Shares, and Warrant Shares have been resold
      or transferred by all the Subscribers pursuant to the Registration Statement
      or
      pursuant to Rule 144, without regard to volume limitations, the Company will
      keep true records and books of account in which full, true and correct entries
      will be made of all dealings or transactions in relation to its business and
      affairs in accordance with generally accepted accounting principles applied
      on a
      consistent basis.

     

                  (j)   Governmental
      Authorities.
      From the
      date of this Agreement and until the sooner of (i) two (2) years after the
      Closing Date, or (ii) until all the Shares, and Warrant Shares have been resold
      or transferred by all the Subscribers pursuant to the Registration Statement
      or
      pursuant to Rule 144, without regard to volume limitations, the Company shall
      duly observe and conform in all material respects to all valid requirements
      of
      governmental authorities relating to the conduct of its business or to its
      properties or assets.

     

    
      
        (Subscription
          Agreement)

        
        

      

      
        14

        
          

        

      

      
        
        

      

    

     

                  (k)   Intellectual
      Property.
      From
      the date of this Agreement and until the sooner of (i) two (2) years after
      the
      Closing Date, or (ii) until all the Shares, and Warrant Shares have been resold
      or transferred by all the Subscribers pursuant to the Registration Statement
      or
      pursuant to Rule 144, without regard to volume limitations, the Company shall
      maintain in full force and effect its corporate existence, rights and franchises
      and all licenses and other rights to use intellectual property owned or
      possessed by it and reasonably deemed to be necessary to the conduct of its
      business.

     

                  (l)   Properties.
      From the
      date of this Agreement and until the sooner of (i) two (2) years after the
      Closing Date, or (ii) until all the Shares, and Warrant Shares have been resold
      or transferred by all the Subscribers pursuant to the Registration Statement
      (as
      defined in Section 11.1(iv) hereof) or pursuant to Rule 144, without regard
      to
      volume limitations, the Company will keep its properties in good repair, working
      order and condition, reasonable wear and tear excepted, and from time to time
      make all necessary and proper repairs, renewals, replacements, additions and
      improvements thereto; and the Company will at all times comply with each
      provision of all leases to which it is a party or under which it occupies
      property if the breach of such provision could reasonably be expected to have
      a
      Material Adverse Effect.

     

                  (m)   Confidentiality/Public
      Announcement.
      From the
      date of this Agreement and until the sooner of (i) two (2) years after the
      Closing Date, or (ii) until all the Shares, and Warrant Shares have been resold
      or transferred by all the Subscribers pursuant to the Registration Statement
      or
      pursuant to Rule 144, without regard to volume limitations, the Company agrees
      that except in connection with a Form 6-K or the Registration Statement, it
      will
      not disclose publicly or privately the identity of the Subscribers unless
      expressly agreed to in writing by a Subscriber or only to the extent required
      by
      law and then only upon five days prior notice to Subscriber. In any event and
      subject to the foregoing, the Company shall file
      a
      Form 6-K or make a public announcement describing the Offering not later than
      the first business day after the Closing Date. In the Form 6-K or public
      announcement, the Company will specifically disclose the amount of common stock
      outstanding immediately after the Closing. A form of the proposed Form 8-K
      or
      public announcement to be employed in connection with the Offering is annexed
      hereto as Exhibit
      D.

     

                  (n)   Further
      Registration Statements.
      Except
      for a registration statement filed on behalf of the Subscribers pursuant to
      Section 11 of this Agreement and as otherwise described on Schedule
      11.1
      hereto,
      the Company will not file any registration statements or amend any already
      filed
      registration statement, including but not limited to Form S-8, with the
      Commission or with state regulatory authorities without the consent of the
      Subscriber until the sooner of (i) one year after the Closing Date, or (ii)
      less
      than 10% of the Note principal remains outstanding (“Exclusion
      Period”).
      The
      Exclusion Period will be in effect during the pendency of an Event of Default
      as
      defined in the Note.

     

                  (o)   Non-Public
      Information.
      The
      Company covenants and agrees that neither it nor any other person acting on
      its
      behalf will provide any Subscriber or its agents or counsel with any information
      that the Company believes constitutes material non-public information, unless
      prior thereto such Subscriber shall have agreed in writing to receive such
      information. The Company understands and confirms that each Subscriber shall
      be
      relying on the foregoing representations in effecting transactions in securities
      of the Company.

     

    10.  Covenants
      of the Company and Subscriber Regarding Indemnification.

     

                  (a)   The
      Company agrees to indemnify, hold harmless, reimburse and defend the
      Subscribers, the Subscribers’ officers, directors, agents, Affiliates, control
      persons, and principal shareholders, against any claim, cost, expense,
      liability, obligation, loss or damage (including reasonable legal fees) of
      any
      nature, incurred by or imposed upon the Subscriber or any such person which
      results, arises out of or is based upon (i) any material misrepresentation
      by
      Company or breach of any warranty by Company in this Agreement or in any
      Exhibits or Schedules attached hereto, or other agreement delivered pursuant
      hereto; or (ii) after any applicable notice and/or cure periods, any breach
      or
      default in performance by the Company of any covenant or undertaking to be
      performed by the Company hereunder, or any other agreement entered into by
      the
      Company and Subscriber relating hereto.

     

    
      
        (Subscription
          Agreement)

        
        

      

      
        15

        
          

        

      

      
        
        

      

    

     

                  (b)   Each
      Subscriber agrees to indemnify, hold harmless, reimburse and defend the Company
      and each of the Company’s officers, directors, agents, Affiliates, control
      persons against any claim, cost, expense, liability, obligation, loss or damage
      (including reasonable legal fees) of any nature, incurred by or imposed upon
      the
      Company or any such person which results, arises out of or is based upon (i)
      any
      material misrepresentation by such Subscriber in this Agreement or in any
      Exhibits or Schedules attached hereto, or other agreement delivered pursuant
      hereto; or (ii) after any applicable notice and/or cure periods, any breach
      or
      default in performance by such Subscriber of any covenant or undertaking to
      be
      performed by such Subscriber hereunder, or any other agreement entered into
      by
      the Company and Subscribers, relating hereto.

     

                  (c)
  In
      no
      event shall the liability of any Subscriber or permitted successor hereunder
      or
      under any Transaction Document or other agreement delivered in connection
      herewith be greater in amount than the dollar amount of the net proceeds
      actually received by such Subscriber upon the sale of Registrable Securities
      (as
      defined herein).

     

                  (d)   The
      procedures set forth in Section 11.6 shall apply to the indemnification set
      forth in Sections 10(a) and 10(b) above.

     

    11.1.  Registration
      Rights.
      The
      Company hereby grants the following registration rights to holders of the
      Securities.

     

                  (i)  On
      one
      occasion, for a period commencing one hundred and fifty-one (151) days after
      the
      Closing Date, but not later than two (2) years after the Closing Date
      (“Request
      Date”),
      upon
      a written request therefor from any record holder or holders of more than 50%
      of
      the Shares issued and issuable upon conversion of the Notes and Warrant Shares
      actually issued upon exercise of the Warrants and Finder’s Warrants, the Company
      shall prepare and file with the Commission a registration statement under the
      1933 Act registering the Shares issuable upon conversion of all sums due under
      the Notes and Warrant Shares issuable upon exercise of the Warrants and Finder’s
      Warrants (collectively “Registrable
      Securities”)
      which
      are the subject of such request for unrestricted public resale by the holder
      thereof. For purposes of Sections 11.1(i) and 11.1(ii), Registrable Securities
      shall not include Securities (A) which are registered for resale in an effective
      registration statement, (B) included for registration in a pending registration
      statement, or (C) which have been issued without further transfer restrictions
      after a sale or transfer pursuant to Rule 144 under the 1933 Act. Upon the
      receipt of such request, the Company shall promptly give written notice to
      all
      other record holders of the Registrable Securities that such registration
      statement is to be filed and shall include in such registration statement
      Registrable Securities for which it has received written requests within ten
      (10) days after the Company gives such written notice. Such other requesting
      record holders shall be deemed to have exercised their demand registration
      right
      under this Section 11.1(i).

     

                  (ii)  If
      the
      Company at any time proposes to register any of its securities under the 1933
      Act for sale to the public, whether for its own account or for the account
      of
      other security holders or both, except with respect to registration statements
      on Forms S-4, S-8 or another form not available for registering the Registrable
      Securities for sale to the public, provided the Registrable Securities are
      not
      otherwise registered for resale by the Subscribers or Holder pursuant to an
      effective registration statement, each such time it will give at least fifteen
      (15) days’ prior written notice to the record holder of the Registrable
      Securities of its intention so to do. Upon the written request of the holder,
      received by the Company within ten (10) days after the giving of any such notice
      by the Company, to register any of the Registrable Securities not previously
      registered, the Company will cause such Registrable Securities as to which
      registration shall have been so requested to be included with the securities
      to
      be covered by the registration statement proposed to be filed by the Company,
      all to the extent required to permit the sale or other disposition of the
      Registrable Securities so registered by the holder of such Registrable
      Securities (the “Seller”
or
      “Sellers”).
      In
      the event that any registration pursuant to this Section 11.1(ii) shall be,
      in
      whole or in part, an underwritten public offering of common stock of the
      Company, the number of shares of Registrable Securities to be included in such
      an underwriting may be reduced by the managing underwriter if and to the extent
      that the Company and the underwriter shall reasonably be of the opinion that
      such inclusion would adversely affect the marketing of the securities to be
      sold
      by the Company therein; provided, however, that the Company shall notify the
      Seller in writing of any such reduction. Notwithstanding the foregoing
      provisions, or Section 11.4 hereof, the Company may withdraw or delay or suffer
      a delay of any registration statement referred to in this Section 11.1(ii)
      without thereby incurring any liability to the Seller.

     

    
      
        (Subscription
          Agreement)

        
        

      

      
        16

        
          

        

      

      
        
        

      

    

     

    (iii)  If,
      at
      the time any written request for registration is received by the Company
      pursuant to Section 11.1(i), the Company has determined to proceed with the
      actual preparation and filing of a registration statement under the 1933 Act
      in
      connection with the proposed offer and sale for cash of any of its securities
      for the Company’s own account and the Company actually does file such other
      registration statement, such written request shall be deemed to have been given
      pursuant to Section 11.1(ii) rather than Section 11.1(i), and the rights of
      the
      holders of Registrable Securities covered by such written request shall be
      governed by Section 11.1(ii).

     

    (iv)  The
      Company shall file with the Commission a Form F-1 registration statement (the
      “Registration
      Statement”)
      (or
      such other form that it is eligible to use) in order to register the Registrable
      Securities for resale and distribution under the 1933 Act) not later
      than
      fourteen
      (14) days after the Closing Date (the “Filing
      Date”),
      and
      cause it to be declared effective not
      later
      than sixty (60) days after the Closing Date
      (the
“Effective
      Date”).
      The
      Company will register not less than a number of shares of Common Stock in the
      aforedescribed registration statement that is equal to 200%
      of
      the Shares issuable upon conversion of the Notes and all of the Warrant Shares
      issuable upon exercise of the Warrants. The Registrable Securities shall be
      reserved and set aside exclusively for the benefit of each Subscriber and
      Warrant holder, pro rata,
      and not
      issued, employed or reserved for anyone other than each such Subscriber and
      Warrant holder. The Registration Statement will immediately be amended or
      additional registration statements will be immediately filed by the Company
      as
      necessary to register additional shares of Common Stock to allow the public
      resale of all Common Stock included in and issuable by virtue of the Registrable
      Securities. Without the written consent of the Subscriber, no securities of
      the
      Company other than the Registrable Securities will be included in the
      Registration Statement except as described on Schedule
      11.1,
      hereto.
      It shall be deemed a Non-Registration Event if at any time after the date the
      Registration Statement is declared effective by the Commission (“Actual
      Effective Date”),
      the
      Company has registered for unrestricted resale on behalf of a Subscriber fewer
      than 125%
      of
      the amount of Common Shares issuable upon full conversion of all sums due under
      the Notes and 100% of the Warrant Shares issuable upon exercise of the
      Warrants.

     

    (v)  The
      law
      firm which will prepare and file the Registration Statement and all amendments
      thereto will be subject to the approval of the Subscribers. The retainer for
      such law firm for the preparation and filing of the Registration Statement
      will
      be payable on the Closing Date out of the funds held pursuant to the Escrow
      Agreement.

     

    
      
        (Subscription
          Agreement)

        
        

      

      
        17

        
          

        

      

      
        
        

      

    

     

    11.2. Registration
      Procedures.
      If and
      whenever the Company is required by the provisions of Section 11.1(i), 11.1(ii),
      or (iv) to effect the registration of any Registrable Securities under the
      1933
      Act, the Company will, as expeditiously as possible: 

     

                  (a)  subject
      to the timelines provided in this Agreement, prepare and file with the
      Commission a registration statement required by Section 11, with respect to
      such
      securities and use its best efforts to cause such registration statement to
      become and remain effective for the period of the distribution contemplated
      thereby (determined as herein provided), promptly provide to the holders of
      the
      Registrable Securities copies of all filings and Commission letters of comment
      and notify Subscribers (by telecopier and by e-mail addresses provided by
      Subscribers) and Grushko & Mittman, P.C. (by telecopier and by email to
Counslers@aol.com)
      on or
      before 3:00 PM EST on the next business day that the Company receives notice
      that (i) the Commission has no comments or no further comments on the
      Registration Statement, and (ii) the registration statement has been declared
      effective (failure to timely provide notice as required by this Section 11.2(a)
      shall be a material breach of the Company’s obligation and an Event of Default
      as defined in the Notes
      and
      a Non-Registration Event as defined in Section 11.4 of this Agreement);

     

                  (b)   prepare
      and file with the Commission such amendments and supplements to such
      registration statement and the prospectus used in connection therewith as may
      be
      necessary to keep such registration statement effective until such registration
      statement has been effective for a period of two (2) years, and comply with
      the
      provisions of the 1933 Act with respect to the disposition of all of the
      Registrable Securities covered by such registration statement in accordance
      with
      the Sellers’ intended method of disposition set forth in such registration
      statement for such period; 

     

                  (c)   furnish
      to the Sellers, at the Company’s expense, such number of copies of the
      registration statement and the prospectus included therein (including each
      preliminary prospectus) as such persons reasonably may request in order to
      facilitate the public sale or their disposition of the securities covered by
      such registration statement; 

     

                  (d)   use
      its
commercially
      reasonable best efforts to register or qualify the Registrable Securities
      covered by such registration statement under the securities or “blue sky” laws
      of New York and such jurisdictions as the Sellers shall request in writing,
      provided, however, that the Company shall not for any such purpose be required
      to qualify generally to transact business as a foreign corporation in any
      jurisdiction where it is not so qualified or to consent to general service
      of
      process in any such jurisdiction; 

     

                  (e)   if
      applicable, list the Registrable Securities covered by such registration
      statement with any securities exchange on which the Common Stock of the Company
      is then listed; 

     

                  (f)   notify
      the Subscribers within two hours of the Company’s becoming aware that a
      prospectus relating thereto is required to be delivered under the 1933 Act,
      of
      the happening of any event of which the Company has knowledge as a result of
      which the prospectus contained in such registration statement, as then in
      effect, includes an untrue statement of a material fact or omits to state a
      material fact required to be stated therein or necessary to make the statements
      therein not misleading in light of the circumstances then existing or which
      becomes subject to a Commission, state or other governmental order suspending
      the effectiveness of the registration statement covering any of the Shares;
      and

     

                  (g)   provided
      same would not be in violation of the provision of Regulation FD under the
      1934
      Act, make available for inspection by the Sellers, and any attorney, accountant
      or other agent retained by the Seller or underwriter, all publicly available,
      non-confidential financial and other records, pertinent corporate documents
      and
      properties of the Company, and cause the Company’s officers, directors and
      employees to supply all publicly available, non-confidential information
      reasonably requested by the seller, attorney, accountant or agent in connection
      with such registration statement.

     

    
      
        (Subscription
          Agreement)

        
        

      

      
        18

        
          

        

      

      
        
        

      

    

     

    11.3.  Provision
      of Documents.
      In
      connection with each registration described in this Section 11, each Seller
      will
      furnish to the Company in writing such information and representation letters
      with respect to itself and the proposed distribution by it as reasonably shall
      be necessary in order to assure compliance with federal and applicable state
      securities laws. 

     

    11.4.  Non-Registration
      Events.
      The
      Company and the Subscribers agree that the Sellers will suffer damages if the
      Registration Statement is not filed by the Filing Date and not declared
      effective by the Commission by the Effective Date, and any registration
      statement required under Section 11.1(i) or 11.1(ii) is not filed within 60
      days
      after written request and declared effective by the Commission within 120 days
      after such request, and maintained in the manner and within the time periods
      contemplated by Section 11 hereof, and it would not be feasible to ascertain
      the
      extent of such damages with precision. Accordingly, if (A) the Registration
      Statement is not filed on or before the Filing Date, (B) is not declared
      effective on or before the Effective Date, (C) the Registration Statement is
      not
      declared effective within three (3) business days after receipt by the Company
      or its attorneys of a written or oral communication from the Commission that
      the
      Registration Statement will not be reviewed or that the Commission has no
      further comments, (D) if the registration statement described in Sections
      11.1(i) or 11.1(ii) is not filed within 60 days after such written request,
      or
      is not declared effective within 120 days after such written request, or (E)
      any
      registration statement described in Sections 11.1(i), 11.1(ii) or 11.1(iv)
      is
      filed and declared effective but shall thereafter cease to be effective (without
      being succeeded within fifteen (15) business days by an effective replacement
      or
      amended registration statement) for a period of time which shall exceed 20
      days
      in the aggregate per year (defined as a period of 365 days commencing on the
      date the Registration Statement is declared effective) (each such event referred
      to in clauses (A) through (E) of this Section 11.4 is referred to herein as
      a
“Non-Registration Event”), then the Company shall deliver to the holder of
      Registrable Securities, as Liquidated Damages, an amount equal to two percent
      (2%) for each thirty (30) days or part thereof during the pendency of such
      default, of the Purchase Price of the Notes remaining unconverted and purchase
      price of Shares issued upon conversion of the Notes owned of record by such
      holder which are subject to such Non-Registration Event. The Company must pay
      the Liquidated Damages in cash. The Liquidated Damages must be paid within
      ten
      (10) days after the end of each thirty (30) day period or shorter part thereof
      for which Liquidated Damages are payable. In the event a Registration Statement
      is filed by the Filing Date but is withdrawn prior to being declared effective
      by the Commission, then such Registration Statement will be deemed to have
      not
      been filed. All
      oral
      or written comments received from the Commission relating to the Registration
      Statement must be satisfactorily responded to within
      ten (10) business days after receipt of comments from the Commission.
      Failure
      to
      timely respond to Commission comments is a Non-Registration Event for which
      Liquidated Damages shall accrue and be payable by the Company to the holders
      of
      Registrable Securities at the same rate set forth above. Notwithstanding the
      foregoing, the Company shall not be liable to the Subscriber under this Section
      11.4 for any events or delays occurring as a consequence of the acts or
      omissions of the Subscribers contrary to the obligations undertaken by
      Subscribers in this Agreement. Liquidated Damages will not accrue nor be payable
      pursuant to this Section 11.4 nor will a Non-Registration Event be deemed to
      have occurred for times during which Registrable Securities are transferable
      by
      the holder of Registrable Securities pursuant to Rule 144(k) under the 1933
      Act.
      In addition to any damages payable herein, if the Registration Statement is
      not
      filed by the Filing Date (as defined in Section 11.1(iv) of this Agreement),
      the
      exercise prices of the Class A and Class B Warrants issued July 29, 2005 and
      those issued in this Offering shall be reduced by $.10 for every week that
      transpires before which such Registration Statement is filed.

     

    
      
        (Subscription
          Agreement)

        
        

      

      
        19

        
          

        

      

      
        
        

      

    

     

    11.5.  Expenses.
      All
      expenses incurred by the Company in complying with Section 11, including,
      without limitation, all registration and filing fees, printing expenses, fees
      and disbursements of counsel and independent public accountants for the Company,
      fees and expenses (including reasonable counsel fees) incurred in connection
      with complying with state securities or “blue sky” laws, fees of the National
      Association of Securities Dealers, Inc., transfer taxes, fees of transfer agents
      and registrars, costs of insurance and fee of one counsel for all Sellers (not
      to exceed $5,000) are called “Registration
      Expenses.”
All
      underwriting discounts and selling commissions applicable to the sale of
      Registrable Securities, including any fees and disbursements of one counsel
      to
      the Seller, are called “Selling
      Expenses.”
The
      Company will pay all Registration Expenses in connection with the registration
      statement under Section 11. Selling Expenses in connection with each
      registration statement under Section 11 shall be borne by the Seller and may
      be
      apportioned among the Sellers in proportion to the number of shares sold by
      the
      Seller relative to the number of shares sold under such registration statement
      or as all Sellers thereunder may agree.

     

    11.6.   Indemnification
      and Contribution.

     

    (a)   In
      the
      event of a registration of any Registrable Securities under the 1933 Act
      pursuant to Section 11, the Company will, to the extent permitted by law,
      indemnify and hold harmless the Seller, each officer of the Seller, each
      director of the Seller, each underwriter of such Registrable Securities
      thereunder and each other person, if any, who controls such Seller or
      underwriter within the meaning of the 1933 Act, against any losses, claims,
      damages or liabilities, joint or several, to which the Seller, or such
      underwriter or controlling person may become subject under the 1933 Act or
      otherwise, insofar as such losses, claims, damages or liabilities (or actions
      in
      respect thereof) arise out of or are based upon any untrue statement or alleged
      untrue statement of any material fact contained in any registration statement
      under which such Registrable Securities was registered under the 1933 Act
      pursuant to Section 11, any preliminary prospectus or final prospectus contained
      therein, or any amendment or supplement thereof, or arise out of or are based
      upon the omission or alleged omission to state therein a material fact required
      to be stated therein or necessary to make the statements therein not misleading
      in light of the circumstances when made, and will subject to the provisions
      of
      Section 11.6(c) reimburse the Seller, each such underwriter and each such
      controlling person for any legal or other expenses reasonably incurred by them
      in connection with investigating or defending any such loss, claim, damage,
      liability or action; provided, however, that the Company shall not be liable
      to
      the Seller to the extent that any such damages arise out of or are based upon
      an
      untrue statement or omission made in any preliminary prospectus if (i) the
      Seller failed to send or deliver a copy of the final prospectus delivered by
      the
      Company to the Seller with or prior to the delivery of written confirmation
      of
      the sale by the Seller to the person asserting the claim from which such damages
      arise, (ii) the final prospectus would have corrected such untrue statement
      or
      alleged untrue statement or such omission or alleged omission, or (iii) to
      the
      extent that any such loss, claim, damage or liability arises out of or is based
      upon an untrue statement or alleged untrue statement or omission or alleged
      omission so made in conformity with information furnished by any such Seller,
      or
      any such controlling person in writing specifically for use in such registration
      statement or prospectus. 

     

    
      
        (Subscription
          Agreement)

        
        

      

      
        20

        
          

        

      

      
        
        

      

    

     

    (b)   In
      the
      event of a registration of any of the Registrable Securities under the 1933
      Act
      pursuant to Section 11, each Seller severally but not jointly will, to the
      extent permitted by law, indemnify and hold harmless the Company, and each
      person, if any, who controls the Company within the meaning of the 1933 Act,
      each officer of the Company who signs the registration statement, each director
      of the Company, each underwriter and each person who controls any underwriter
      within the meaning of the 1933 Act, against all losses, claims, damages or
      liabilities, joint or several, to which the Company or such officer, director,
      underwriter or controlling person may become subject under the 1933 Act or
      otherwise, insofar as such losses, claims, damages or liabilities (or actions
      in
      respect thereof) arise out of or are based upon any untrue statement or alleged
      untrue statement of any material fact contained in the registration statement
      under which such Registrable Securities were registered under the 1933 Act
      pursuant to Section 11, any preliminary prospectus or final prospectus contained
      therein, or any amendment or supplement thereof, or arise out of or are based
      upon the omission or alleged omission to state therein a material fact required
      to be stated therein or necessary to make the statements therein not misleading,
      and will reimburse the Company and each such officer, director, underwriter
      and
      controlling person for any legal or other expenses reasonably incurred by them
      in connection with investigating or defending any such loss, claim, damage,
      liability or action, provided, however, that the Seller will be liable hereunder
      in any such case if and only to the extent that any such loss, claim, damage
      or
      liability arises out of or is based upon an untrue statement or alleged untrue
      statement or omission or alleged omission made in reliance upon and in
      conformity with information pertaining to such Seller, as such, furnished in
      writing to the Company by such Seller specifically for use in such registration
      statement or prospectus, and provided, further, however, that the liability
      of
      the Seller hereunder shall be limited to the net proceeds actually received
      by
      the Seller from the sale of Registrable Securities covered by such registration
      statement.

     

    (c)   Promptly
      after receipt by an indemnified party hereunder of notice of the commencement
      of
      any action, such indemnified party shall, if a claim in respect thereof is
      to be
      made against the indemnifying party hereunder, notify the indemnifying party
      in
      writing thereof, but the omission so to notify the indemnifying party shall
      not
      relieve it from any liability which it may have to such indemnified party other
      than under this Section 11.6(c) and shall only relieve it from any liability
      which it may have to such indemnified party under this Section 11.6(c), except
      and only if and to the extent the indemnifying party is prejudiced by such
      omission. In case any such action shall be brought against any indemnified
      party
      and it shall notify the indemnifying party of the commencement thereof, the
      indemnifying party shall be entitled to participate in and, to the extent it
      shall wish, to assume and undertake the defense thereof with counsel
      satisfactory to such indemnified party, and, after notice from the indemnifying
      party to such indemnified party of its election so to assume and undertake
      the
      defense thereof, the indemnifying party shall not be liable to such indemnified
      party under this Section 11.6(c) for any legal expenses subsequently incurred
      by
      such indemnified party in connection with the defense thereof other than
      reasonable costs of investigation and of liaison with counsel so selected,
      provided, however, that, if the defendants in any such action include both
      the
      indemnified party and the indemnifying party and the indemnified party shall
      have reasonably concluded that there may be reasonable defenses available to
      it
      which are different from or additional to those available to the indemnifying
      party or if the interests of the indemnified party reasonably may be deemed
      to
      conflict with the interests of the indemnifying party, the indemnified parties,
      as a group, shall have the right to select one separate counsel and to assume
      such legal defenses and otherwise to participate in the defense of such action,
      with the reasonable expenses and fees of such separate counsel and other
      expenses related to such participation to be reimbursed by the indemnifying
      party as incurred.

     

    (d)   In
      order
      to provide for just and equitable contribution in the event of joint liability
      under the 1933 Act in any case in which either (i) a Seller, or any controlling
      person of a Seller, makes a claim for indemnification pursuant to this Section
      11.6 but it is judicially determined (by the entry of a final judgment or decree
      by a court of competent jurisdiction and the expiration of time to appeal or
      the
      denial of the last right of appeal) that such indemnification may not be
      enforced in such case notwithstanding the fact that this Section 11.6 provides
      for indemnification in such case, or (ii) contribution under the 1933 Act may
      be
      required on the part of the Seller or controlling person of the Seller in
      circumstances for which indemnification is not provided under this Section
      11.6;
      then, and in each such case, the Company and the Seller will contribute to
      the
      aggregate losses, claims, damages or liabilities to which they may be subject
      (after contribution from others) in such proportion so that the Seller is
      responsible only for the portion represented by the percentage that the public
      offering price of its securities offered by the registration statement bears
      to
      the public offering price of all securities offered by such registration
      statement, provided, however, that, in any such case, (y) the Seller will not
      be
      required to contribute any amount in excess of the public offering price of
      all
      such securities sold by it pursuant to such registration statement; and (z)
      no
      person or entity guilty of fraudulent misrepresentation (within the meaning
      of
      Section 11(f) of the 1933 Act) will be entitled to contribution from any person
      or entity who was not guilty of such fraudulent misrepresentation.

     

    
      
        (Subscription
          Agreement)

        
        

      

      
        21

        
          

        

      

      
        
        

      

    

     

    11.7.   Delivery
      of Unlegended Shares.

     

    (a)   Within
      four (4) business days (such fourth business day being the “Unlegended
      Shares Delivery Date”)
      after
      the business day on which the Company has received (i) a notice that Shares,
      or
      Warrant Shares have been sold pursuant to the Registration Statement or Rule
      144
      under the 1933 Act, (ii) a representation that the prospectus delivery
      requirements, or the requirements of Rule 144, as applicable and if required,
      have been satisfied, and (iii) the original share certificates representing
      the
      shares of Common Stock that have been sold, and (iv) in the case of sales under
      Rule 144, customary representation letters of the Subscriber and/or Subscriber’s
      broker regarding compliance with the requirements of Rule 144, the Company
      at
      its expense, (y) shall deliver, and shall cause legal counsel selected by the
      Company to deliver to its transfer agent (with copies to Subscriber) an
      appropriate instruction and opinion of such counsel, directing the delivery
      of
      shares of Common Stock without any legends including the legend set forth in
      Section 4(h)
      above,
      reissuable pursuant to any effective and current Registration Statement
      described in Section 11 of this Agreement or pursuant to Rule 144 under the
      1933
      Act (the “Unlegended
      Shares”);
      and
      (z) cause the transmission of the certificates representing the Unlegended
      Shares together with a legended certificate representing the balance of the
      submitted certificates, if any, to the Subscriber at the address specified
      in
      the notice of sale, via express courier, by electronic transfer or otherwise
      on
      or before the Unlegended Shares Delivery Date. Transfer fees shall be the
      responsibility of the Seller.

     

    (b)   In
      lieu
      of delivering physical certificates representing the Unlegended Shares, if
      the
      Company’s transfer agent is participating in the Depository Trust Company
      (“DTC”)
      Fast
      Automated Securities Transfer program, upon request of a Subscriber, so long
      as
      the certificates therefor do not bear a legend and the Subscriber is not
      obligated to return such certificate for the placement of a legend thereon,
      the
      Company shall cause its transfer agent to electronically transmit the Unlegended
      Shares by crediting the account of Subscriber’s prime Broker with DTC through
      its Deposit Withdrawal Agent Commission system. Such delivery must be made
      on or
      before the Unlegended Shares Delivery Date.

    

    (c)   The
      Company understands that a delay in the delivery of the Unlegended Shares
      pursuant to Section 11 hereof later than the Unlegended Shares Delivery Date
      could result in economic loss to a Subscriber. As compensation to a Subscriber
      for such loss, the Company agrees to pay late payment fees (as liquidated
      damages and not as a penalty) to the Subscriber for late delivery of Unlegended
      Shares in the amount of $100 per business day after the Delivery Date for each
      $10,000 of purchase price of the Unlegended Shares subject to the delivery
      default. If during any 360 day period, the Company fails to deliver Unlegended
      Shares as required by this Section 11.7 for an aggregate of thirty (30) days,
      then each Subscriber or assignee holding Securities subject to such default
      may,
      at its option, require the Company to redeem all or any portion of the Shares,
      and Warrant Shares subject to such default at a price per share equal to 130%
      of
      the purchase price or value described in Section 12(e) hereof, of such Shares,
      and Warrant Shares (“Unlegended
      Redemption Amount”).
      The
      amount of the aforedescribed liquidated damages that have accrued or been paid
      for the twenty day period prior to the receipt by the Subscriber of the
      Unlegended Redemption Amount shall be credited against the Unlegended Redemption
      Amount. The Company shall pay any payments incurred under this Section in
      immediately available funds upon demand.

     

    
      
        (Subscription
          Agreement)

        
        

      

      
        22

        
          

        

      

      
        
        

      

    

     

    (d)   In
      addition to any other rights available to a Subscriber, if the Company fails
      to
      deliver to a Subscriber Unlegended Shares as required pursuant to this
      Agreement, within seven (7) business days after the Unlegended Shares Delivery
      Date and the Subscriber purchases (in an open market transaction or otherwise)
      shares of common stock to deliver in satisfaction of a sale by such Subscriber
      of the shares of Common Stock which the Subscriber was entitled to receive
      from
      the Company (a “Buy-In”),
      then
      the Company shall pay in cash to the Subscriber (in addition to any remedies
      available to or elected by the Subscriber) the amount by which (A) the
      Subscriber’s total purchase price (including brokerage commissions, if any) for
      the shares of common stock so purchased exceeds (B) the aggregate purchase
      price
      of the shares of Common Stock delivered to the Company for reissuance as
      Unlegended Shares  together
      with interest thereon at a rate of 15% per annum, accruing until such amount
      and
      any accrued interest thereon is paid in full (which amount shall be paid as
      liquidated damages and not as a penalty). For
      example, if a Subscriber purchases shares of Common Stock having a total
      purchase price of $11,000 to cover a Buy-In with respect to $10,000 of purchase
      price of shares of Common Stock delivered to the Company for reissuance as
      Unlegended Shares, the Company shall be required to pay the Subscriber
      $1,000,
      plus interest. The
      Subscriber shall provide the Company written notice indicating the amounts
      payable to the Subscriber in respect of the Buy-In.

     

    (e)   In
      the
      event a Subscriber shall request delivery of Unlegended Shares as described
      in
      Section 11.7 and the Company is required to deliver such Unlegended Shares
      pursuant to Section 11.7, the Company may not refuse to deliver Unlegended
      Shares based on any claim that such Subscriber or any one associated or
      affiliated with such Subscriber has been engaged in any violation of law, or
      for
      any other reason, unless, an injunction or temporary restraining order from
      a
      court, on notice, restraining and or enjoining delivery of such Unlegended
      Shares or exercise of all or part of said Warrant shall have been sought and
      obtained
      and the
      Company has posted a surety bond for the benefit of such Subscriber in the
      amount of 130% of the amount of the aggregate purchase price of the Common
      Stock
      and Warrant Shares which are subject to the injunction or temporary restraining
      order, which bond shall remain in effect until the completion of
      arbitration/litigation of the dispute and the proceeds of which shall be payable
      to such Subscriber to the extent Subscriber obtains judgment in Subscriber’s
      favor.

     

    12.   (a)   Offering
      Restrictions.
      Except
      in connection with (i) the
      exercise of options or warrants or conversion of Notes or amounts which are
      granted, issued or accrue pursuant to this Agreement, (ii)
      as
      has
      been described in the Reports or Other Written Information filed with the
      Commission or delivered to the Subscribers prior to the Closing Date, (iii)
      full
      or partial consideration in connection with a strategic merger, consolidation
      or
      purchase of substantially all of the securities or assets of corporation or
      other entity, (iv)
      the
      Company’s issuance of securities in connection with strategic license agreements
      and other partnering arrangements so long as such issuances are not for the
      purpose of raising capital, (v) the Company’s issuance of Common Stock or the
      issuance or grants of options to purchase Common Stock pursuant to the Company’s
      stock option plans and employee stock purchase plans as they now exist, which
      copies of such plans have been delivered to the Subscribers, and (vi) sales
      of
      Common Stock without the grant of any registration rights to the purchasers
      of
      such Common Stock and which the Company irrevocably agrees not to register
      for
      public resale (collectively
      the foregoing are “Excepted
      Issuances”),
      until
      the Actual Effective Date and during the pendency of an Event of Default, or
      when any compensatory or liquidated damages are accruing or are outstanding,
      the
      Company will not enter into an agreement to nor issue any equity, convertible
      debt or other securities convertible into common stock or equity of the Company
      nor modify any of the foregoing which may be outstanding at anytime, without
      the
      prior written consent of the Subscriber, which consent may be withheld for
      any
      reason. For so long as the Notes are outstanding the Company will not enter
      into
      any equity line of credit or similar agreement, nor issue or agree to issue
      any
      floating or variable priced equity linked instruments nor any of the foregoing
      or equity with price reset rights.

     

    
      
        (Subscription
          Agreement)

        
        

      

      
        23

        
          

        

      

      
        
        

      

    

     

    (b)   Favored
      Nations Provision.
      Except
      for the Excepted Issuances, if at any time Notes or Warrants are outstanding
      the
      Company shall offer, issue or agree to issue any common stock or securities
      convertible into or exercisable for shares of common stock (or modify any of
      the
      foregoing which may be outstanding) to any person or entity at a price per
      share
      or conversion or exercise price per share which shall be less than the
      Conversion Price in respect of the Shares, or if less than the Warrant exercise
      price in respect of the Warrant Shares, without the consent of each Subscriber
      holding Notes, Shares, Warrants, or Warrant Shares, then the Company shall
      issue, for each such occasion, additional shares of Common Stock to each
      Subscriber so that the average per share purchase price of the shares of Common
      Stock issued to the Subscriber (of only the Common Stock or Warrant Shares
      still
      owned by the Subscriber) is equal to such other lower price per share and the
      Conversion Price and Warrant Exercise Price shall automatically be reduced
      to
      such other lower price per share. The average Purchase Price of the Shares
      and
      average exercise price in relation to the Warrant Shares shall be calculated
      separately for the Shares and Warrant Shares. The foregoing calculation and
      issuance shall be made separately for Shares received upon Note conversion
      and
      separately for Warrant Shares. The delivery to the Subscriber of the additional
      shares of Common Stock shall be not later than the closing date of the
      transaction giving rise to the requirement to issue additional shares of Common
      Stock. The Subscriber is granted the registration rights described in Section
      11
      hereof in relation to such additional shares of Common Stock except that the
      Filing Date and Effective Date vis-à-vis such additional common shares shall be,
      respectively, the thirtieth (30th)
      and
      sixtieth (60th)
      date
      after the closing date giving rise to the requirement to issue the additional
      shares of Common Stock. For purposes of the issuance and adjustment described
      in
      this paragraph, the issuance of any security of the Company carrying the right
      to convert such security into shares of Common Stock or of any warrant, right
      or
      option to purchase Common Stock shall result in the issuance of the additional
      shares of Common Stock upon the sooner of the agreement to or actual issuance
      of
      such convertible security, warrant, right or option and again at any time upon
      any subsequent issuances of shares of Common Stock upon exercise of such
      conversion or purchase rights if such issuance is at a price lower than the
      Conversion Price or Warrant exercise price in effect upon such issuance. The
      rights of the Subscriber set forth in this Section 12 are in addition to any
      other rights the Subscriber has pursuant to this Agreement, the Note, any
      Transaction Document, and any other agreement referred to or entered into in
      connection herewith. 

     

    (c)   Option
      Plan Restrictions.
      The
      only officer, director, employee and consultant stock option or stock incentive
      plan currently in effect or contemplated by the Company has been submitted
      to
      the Subscribers or is described with Reports. No other plan will be adopted
      nor
      may any options or equity not included in such plan be issued until after the
      Exclusion Period.

     

    (d)   Right
      of First Offer.
      Until
      one year after the Closing Date, the Subscribers shall be given not less than
      ten (10) business days prior written notice of any proposed sale by the Company
      of its common stock or other securities or debt obligations, except in
      connection with the Excepted Issuances. The
      Subscribers who exercise their rights pursuant to this Section 12(d) shall
      have
      the right during the ten (10) business days following receipt of the notice
      to
      purchase, in the aggregate, such offered common stock, debt or other securities
      in accordance with the terms and conditions set forth in the notice of sale
      in
      the same proportion to each other as their purchase of Notes in the Offering.
      In
      the event such terms and conditions are modified during the notice period,
      the
      Subscribers shall be given prompt notice of such modification and shall have
      the
      right during the ten (10) business days following the notice of modification
      to
      exercise such right.

     

    
      
        (Subscription
          Agreement)

        
        

      

      
        24

        
          

        

      

      
        
        

      

    

     

    (e)   Paid
      In Kind.
      The
      Subscriber may demand that some or all of the sums payable to the Subscriber
      pursuant to Sections 7.1(c), 7.2, 7.5, 11.4, 11.7(c), 11.7(d) and 11.7(e) that
      are not paid within ten business days of the required payment date be paid
      in
      shares of Common Stock valued at the Conversion Price in effect at the time
      Subscriber makes such demand or, at the Subscriber’s election, at such other
      valuation described in the Transaction Documents. In addition to any other
      rights granted to the Subscriber herein, the Subscriber is also granted the
      registration rights set forth in Section 11.1(ii) hereof in relation to such
      shares of Common Stock and the Common Stock issuable pursuant to this Section
      12(e). For purposes only of determining any liquidated damages pursuant to
      the
      Transaction Documents, the entire Purchase Price shall be allocated to the
      Notes
      and none to the Warrants; and the Warrant Shares shall be valued at the actual
      exercise price thereof.

     

    (f)   Maximum
      Exercise of Rights.
      In the
      event the exercise of the rights described in Sections 12(b), 12(d) and 12(e)
      would
      result in the issuance of an amount of common stock of the Company that would
      exceed the maximum amount that may be issued to a Subscriber calculated in
      the
      manner described in Section 7.3 of this Agreement, then the issuance of such
      additional shares of common stock of the Company to such Subscriber will be
      deferred in whole or in part until such time as such Subscriber is able to
      beneficially own such common stock without exceeding the maximum amount set
      forth calculated in the manner described in Section 7.3 of this Agreement.
      The
      determination of when such common stock may be issued shall be made by each
      Subscriber as to only such Subscriber.

     

    13.    Miscellaneous.

     

    (a)   Notices.
      All
      notices, demands, requests, consents, approvals, and other communications
      required or permitted hereunder shall be in writing and, unless otherwise
      specified herein, shall be (i) personally served, (ii) deposited in the mail,
      registered or certified, return receipt requested, postage prepaid, (iii)
      delivered by reputable air courier service with charges prepaid, or (iv)
      transmitted by hand delivery, telegram, or facsimile, addressed as set forth
      below or to such other address as such party shall have specified most recently
      by written notice. Any notice or other communication required or permitted
      to be
      given hereunder shall be deemed effective (a) upon hand delivery or delivery
      by
      facsimile, with accurate confirmation generated by the transmitting facsimile
      machine, at the address or number designated below (if delivered on a business
      day during normal business hours where such notice is to be received), or the
      first business day following such delivery (if delivered other than on a
      business day during normal business hours where such notice is to be received)
      or (b) on the second business day following the date of mailing by express
      courier service, fully prepaid, addressed to such address, or upon actual
      receipt of such mailing, whichever shall first occur. The addresses for such
      communications shall be: (i) if to the Company, to: Valcent Products Inc.,
      420-475 Howe Street, Vancouver, British Columbia, Canada V6C 2B3, Attn: Glen
      M.
      Kertz, President, telecopier number: (604) 904-9431, with an additional copy
      only by telecopier only to: George Orr, Suite 420-475 Howe Street, Vancouver,
      British Columbia, Canada V6C 2B3, telecopier
      number: (604) 606-7980, and (ii) if to the Subscribers, to: the
      one
      or more addresses and telecopier numbers indicated on the signature pages
      hereto, with an additional copy by telecopier only to: Grushko & Mittman,
      P.C., 551 Fifth Avenue, Suite 1601, New York, New York 10176, telecopier number:
      (212) 697-3575.

     

    (b)   Entire
      Agreement; Assignment.
      This
      Agreement and other documents delivered in connection herewith represent the
      entire agreement between the parties hereto with respect to the subject matter
      hereof and may be amended only by a writing executed by both parties. Neither
      the Company nor the Subscribers have relied on any representations not contained
      or referred to in this Agreement and the documents delivered herewith. No right
      or obligation of the Company shall be assigned without prior notice to and
      the
      written consent of the Subscribers. 

     

    (c)   
      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.

     

    
      
        (Subscription
          Agreement)

        
        

      

      
        25

        
          

        

      

      
        
        

      

    

     

    (d)   Law
      Governing this Agreement.
      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. Any action brought by either party against the other concerning
      the transactions contemplated by this Agreement shall be brought only in the
      state courts of New York or in the federal courts located in the state of New
      York. The
      parties and the individuals executing this Agreement and other agreements
      referred to herein or delivered in connection herewith on behalf of the Company
      agree to submit to the jurisdiction of such courts and waive trial by
      jury.
      The
      prevailing party shall be entitled to recover from the other party its
      reasonable attorney’s fees and costs. In the event that any provision of this
      Agreement or any other agreement delivered in connection herewith is invalid
      or
      unenforceable under any applicable statute or rule of law, then such provision
      shall be deemed inoperative to the extent that it may conflict therewith and
      shall be deemed modified to conform with such statute or rule of law. Any such
      provision which may prove invalid or unenforceable under any law shall not
      affect the validity or enforceability of any other provision of any
      agreement.

     

    (e)   Specific
      Enforcement, Consent to Jurisdiction.
      The
      Company and Subscriber acknowledge and agree that irreparable damage would
      occur
      in the event that any of the provisions of this Agreement were not performed
      in
      accordance with their specific terms or were otherwise breached. It is
      accordingly agreed that the parties shall be entitled to one or more preliminary
      and final injunctions to prevent or cure breaches of the provisions of this
      Agreement and to enforce specifically the terms and provisions hereof, this
      being in addition to any other remedy to which any of them may be entitled
      by
      law or equity. Subject to Section 13(d) hereof, each of the Company, Subscriber
      and any signator hereto in his personal capacity hereby waives, and agrees
      not
      to assert in any such suit, action or proceeding, any claim that it is not
      personally subject to the jurisdiction in New York of such court, that the
      suit,
      action or proceeding is brought in an inconvenient forum or that the venue
      of
      the suit, action or proceeding is improper. Nothing in this Section shall affect
      or limit any right to serve process in any other manner permitted by
      law.

     

    (f)   Currency.
      All
      references to currency in the Transaction Documents shall mean the currency
      of
      the United States of America.

     

    (g)   Independent
      Nature of Subscribers.  
        The
      Company acknowledges that the obligations of each Subscriber under the
      Transaction Documents are several and not joint with the obligations of any
      other Subscriber, and no Subscriber shall be responsible in any way for the
      performance of the obligations of any other Subscriber under the Transaction
      Documents. The
      Company acknowledges that each Subscriber has represented that the decision
      of
      each Subscriber to purchase Securities has been made by such Subscriber
      independently of any other Subscriber and independently of any information,
      materials, statements or opinions as to the business, affairs, operations,
      assets, properties, liabilities, results of operations, condition (financial
      or
      otherwise) or prospects of the Company which may have been made or given by
      any
      other Subscriber or by any agent or employee of any other Subscriber, and no
      Subscriber or any of its agents or employees shall have any liability to any
      Subscriber (or any other person) relating to or arising from any such
      information, materials, statements or opinions.  The
      Company acknowledges that nothing contained in any Transaction Document, and
      no
      action taken by any Subscriber pursuant hereto or thereto (including, but not
      limited to, the (i) inclusion of a Subscriber in the Registration Statement
      and
      (ii) review by, and consent to, such Registration Statement by a Subscriber)
      shall be deemed to constitute the Subscribers as a partnership, an association,
      a joint venture or any other kind of entity, or create a presumption that the
      Subscribers are in any way acting in concert or as a group with respect to
      such
      obligations or the transactions contemplated by the Transaction Documents. 
The Company acknowledges that each Subscriber shall be entitled to independently
      protect and enforce its rights, including without limitation, the rights arising
      out of the Transaction Documents, and it shall not be necessary for
      any other Subscriber to be joined as an additional party in any proceeding
      for
      such purpose.  The Company acknowledges that it has elected to provide all
      Subscribers with the same terms and Transaction Documents for the convenience
      of
      the Company and not because Company was required or requested to do so by the
      Subscribers.  The Company acknowledges that such procedure with respect to
      the Transaction Documents in no way creates a presumption that the Subscribers
      are in any way acting in concert or as a group with respect to the Transaction
      Documents or the transactions contemplated thereby.

     

    
      
        (Subscription
          Agreement)

        
        

      

      
        26

        
          

        

      

      
        
        

      

    

     

    [THIS
      SPACE INTENTIONALLY LEFT BLANK]

    

    

     

    
      
        (Subscription
          Agreement)

        
        

      

      
        27

        
          

        

      

      
        
        

      

    

     

    SIGNATURE
      PAGE TO SUBSCRIPTION AGREEMENT (A)

     

    

    Please
      acknowledge your acceptance of the foregoing Subscription Agreement by signing
      and returning a copy to the undersigned whereupon it shall become a binding
      agreement between us.

    

    VALCENT
      PRODUCTS INC.

    an
      Alberta, Canada corporation

    

    

    By:_________________________________

    Name:
      Glen M. Kertz

    Title:
      President

    

    Dated:
      April _____, 2006

    

    

    

    
      	
              SUBSCRIBER

            	
              NOTE
                PRINCIPAL

            
	
              ALPHA
                CAPITAL AKTIENGESELLSCHAFT

              Pradafant
                7

              9490
                Furstentums

              Vaduz,
                Lichtenstein

              Fax:
                011-42-32323196

               

               

               

               

              _____________________________________

              (Signature)

              By:

            	
              $100,000.00

            

    

     

    
 

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    SIGNATURE
      PAGE TO SUBSCRIPTION AGREEMENT (B)

     

    

    Please
      acknowledge your acceptance of the foregoing Subscription Agreement by signing
      and returning a copy to the undersigned whereupon it shall become a binding
      agreement between us.

    

    VALCENT
      PRODUCTS INC.

    an
      Alberta, Canada corporation

    

    

    By:_________________________________

    Name:
      Glen M. Kertz

    Title:
      President

    

    Dated:
      April _____, 2006

    

    

    

    
      	
              SUBSCRIBER

            	
              NOTE
                PRINCIPAL

            
	
              PLATINUM
                LONG TERM GROWTH III

              Attn:
                Mark Nordlicht

              152
                West 57th
                Street

              New
                York, New York 10019

              Fax:
                (212) 581-0002

               

               

               

               

               

              _____________________________________

              (Signature)

              By:

            	
              $185,000.00

            

    

    
 

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    SIGNATURE
      PAGE TO SUBSCRIPTION AGREEMENT (C)

     

    

    Please
      acknowledge your acceptance of the foregoing Subscription Agreement by signing
      and returning a copy to the undersigned whereupon it shall become a binding
      agreement between us.

    

    VALCENT
      PRODUCTS INC.

    an
      Alberta, Canada corporation

    

    

    By:_________________________________

    Name:
      Glen M. Kertz

    Title:
      President

    

    Dated:
      April _____, 2006

    

    

    

    
      	
              SUBSCRIBER

            	
              NOTE
                PRINCIPAL

            
	
              MONARCH
                CAPITAL FUND LTD.

              c/o
                Beacon Capital Management Limited

              Beacon
                Fund Advisors Limited

              Harbour
                House, Waterfront Drive

              P.O.
                Box 972, Road Town

              Tortola,
                British Virgin Island

              Fax:
                (284) 494-4771

               

               

               

               

              _____________________________________

              (Signature)

            	
              $166,666.00

            

    

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    SIGNATURE
      PAGE TO SUBSCRIPTION AGREEMENT (D)

     

    

    Please
      acknowledge your acceptance of the foregoing Subscription Agreement by signing
      and returning a copy to the undersigned whereupon it shall become a binding
      agreement between us.

    

    VALCENT
      PRODUCTS INC.

    an
      Alberta, Canada corporation

    

    

    By:_________________________________

    Name:
      Glen M. Kertz

    Title:
      President

    

    Dated:
      April _____, 2006

    

    

    

    
      	
              SUBSCRIBER

            	
              NOTE
                PRINCIPAL

            
	
              CMS
                CAPITAL

              9612
                Van Nuys Blvd., Suite 108

              Panorama
                City, CA 91402

              Attn:
                Judah Zavdi

              Fax:
                (818) 907-3372

               

               

               

               

              _____________________________________

              (Signature)

            	
              $50,000.00

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    SIGNATURE
      PAGE TO SUBSCRIPTION AGREEMENT (E)

     

    

    Please
      acknowledge your acceptance of the foregoing Subscription Agreement by signing
      and returning a copy to the undersigned whereupon it shall become a binding
      agreement between us.

    

    VALCENT
      PRODUCTS INC.

    an
      Alberta, Canada corporation

    

    

    By:_________________________________

    Name:
      Glen M. Kertz

    Title:
      President

    

    Dated:
      April _____, 2006

    

    

    

    
      	
              SUBSCRIBER

            	
              NOTE
                PRINCIPAL

            
	
              OSHER
                CAPITAL INC.

              5
                Sansberry Lane

              Spring
                Valley, NY 10977

              Fax:
                (212) 586-8244

               

               

               

               

               

              _____________________________________

              (Signature)

            	
              $50,000.00

            

    

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    LIST
      OF EXHIBITS AND SCHEDULES

     

     

     

    Exhibit
      A1    Form
      of
      Class A Warrant

     

    Exhibit
      A2    Form
      of
      Class B Warrant

     

    Exhibit
      B        Escrow
      Agreement

     

    Exhibit
      C        Form
      of
      Legal Opinion

     

    Exhibit
      D        Form
      of
      Public Announcement or Form 6-K

     

    Schedule
      5(a)  Subsidiaries

     

    Schedule
      5(d)  Additional
      Issuances / Capitalization

     

    Schedule
      5(e)  Consents

     

    Schedule
      5(m)  Defaults

     

    Schedule
      5(q)  Undisclosed
      Liabilities

     

    Schedule
      8(a)  Finder’s
      Fee and Recipients

     

    Schedule
      9(e)  Use
      of
      Proceeds

     

    Schedule
      11.1  Other
      Securities to be Registered

     

    Schedule
      12(a)    Other
      Excepted Issuances

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

       

    

    SCHEDULE
      8(a)

    

    FINDER

     

    

    
      	FINDER:	
              VISCOUNT
                INVESTMENTS, LTD.
                
                c/o
                  TCFS Services Limited

                2nd
                  Floor, 170 Piccadilly

                London,
                  W1J 9EJ

                Fax:
                  011-44-207-207-0975

              

            

    

    

    

    Cash
      Fee.
      The
      Company agrees that it will pay the Finder, on the Closing Date a fee of ten
      percent (10%) of the Purchase Price (“Finder’s
      Cash Fee”).
      The
      Company represents that there are no other parties entitled to receive fees,
      commissions, or similar payments in connection with the Offering except the
      Finder.

    

    Warrant
      Exercise Compensation.
      The
      Finder will also be paid by the Company ten percent (10%) of the cash proceeds
      received by the Company from exercise of the Class A and Class B Warrants
      (“Warrant
      Exercise Compensation”).
      The
      Warrant Exercise Compensation must be paid by the Company to the Finder within
      five (5) days after each receipt by the Company of Warrant Exercise cash
      proceeds.

     

    Finder’s
      Shares.
      The
      Finder will be issued one share of Common Stock for each three dollars of Note
      principal issued on the Closing Date (“Finder’s
      Shares”).

     

    Finder’s
      Warrants.
      On the
      Closing Date, the Company will issue to the Finder, Warrants similar to and
      carrying the same rights as the Warrants issuable to the Subscribers except
      that
      Warrant Exercise Compensation will not be payable in connection with such
      Warrants (“Finder’s
      Warrants”).
      300,000 Warrant Shares will be purchasable for $0.50 per Warrant Share and
      500,000 Warrant Shares will be purchasable for $0.75 per Warrant Share. The
      Finder’s Warrants described above will be issued pro rata based
      $1,500,000.

     

    All
      the
      representations, covenants, warranties, undertakings, remedies, liquidated
      damages, indemnification, and other rights including but not limited to
      reservation requirements and registration rights made or granted to or for
      the
      benefit of the Subscribers are hereby also made and granted to the Finder in
      respect of the Finder’s Warrants.

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